Monascostroma sphagnophilum is an ascomycetous fungus that has been reported to grow on Sphagnum, accompanied by algal colonies. Its relationship with the co-existing algae has been poorly investigated. We collected ascomata on gelatinous algal colonies found on Leucobryum sp. in Japan, and morphologically and phylogenetically identified them as M. sphagnophilum. This is the first report of this fungus from Asia. Phylogenetic analysis of the fungal isolates confirmed that they belong to Capnodiales, though not resolved at family level. The associated green algae were isolated and identified as members of the genus Coccomyxa based on our phylogenetic analysis. In natural habitats, hyphae of M. sphagnophilum were observed to grow on and within thick algal extracellular matrix while not infecting cells of Leucobryum sp. In co-culture experiments, growth of M. sphagnophilum hyphae on the algal cell surface of one Coccomyxa isolate was observed. This interaction was also observed when the fungal isolates were co-cultured with Elliptochloris subsphaerica, which served as a negative control, but not with the other Coccomyxa isolate originally associated with M. sphagnophilum. Therefore, interactive specificity was not resolved. Since desiccation tolerance has been considered as a pre-adaptation of fungus-alga symbiosis to inhabit light-exposed and thus potentially desiccated habitats, colonizing gelatinous and water-retaining green algal colonies would be an alternative symbiotic strategy to co-exist with terrestrial algae that should be evaluated in the context of the evolution of fungus-alga symbiosis. Keywords: Environmental tolerance · Dothideomycetes · Lichenization · Substrate preference.