A species of Inocybe common in Washington, Oregon and British Columbia is documented and described as new. The species, I. chondroderma, is characterized by these features: pileus with a fulvous disk and ochraceous to chamois margin, presence of a cortina, densely mycelioid stipe base, smooth spores and fall phenology. The most reliable and distinctive feature of the species is a blue-green or turquoise reaction in response to application of a solution of p-dimethylaminobenzaldehyde (PDAB), indicating the presence of what is most likely an indole alkaloid. PDAB use provides a quick and diagnostic character easily implemented in a laboratory setting. ITS sequences from recent collections of I. chondroderma and from materials collected in the 1940s in Washington and Oregon fully match numerous mislabeled sequences from specimens in British Columbia and Oregon. The species is most closely related to an unclarified taxon from Colorado and Japan (I. cf. chondroderma) and a rare European species, I. subnudipes. Nine different species names in Inocybe and one in Hebeloma attributed to I. chondroderma based on GenBank BLASTN searches of the ITS locus match with 99–100% similarity, reinforcing concerns about taxonomic inaccuracies in public DNA sequence databases. A complete morphological description, illustrations and phylogenetic assessment are provided.