Clonostachys (Bionectriaceae, Hypocreales species are common soil-borne fungi, endophytes, epiphytes, and saprotrophs. Sexual morphs of Clonostachys spp. were placed in the genus Bionectria, which was further segregated into the six subgenera Astromata, Bionectria, Epiphloea, Myronectria, Uniparietina, and Zebrinella. However, with the end of dual nomenclature, Clonostachys became the single depository for sexual and asexual morph-typified species. Species of Clonostachys are typically characterised by penicillate, sporodochial, and, in many cases, dimorphic conidiophores (primary and secondary conidiophores). Primary conidiophores are mononematous, either verticillium-like or narrowly penicillate. The secondary conidiophores generally form imbricate conidial chains that can collapse to slimy masses, particularly on sporodochia. In the present study, we investigated the species diversity within a collection of 420 strains of Clonostachys from the culture collection of, and personal collections at, the Westerdijk Fungal Biodiversity Institute in Utrecht, the Netherlands. Strains were analysed based on their morphological characters and molecular phylogeny. The latter used DNA sequence data of the nuclear ribosomal internal transcribed spacer regions and intervening 5.8S nrDNA (ITS) and partial 28S large subunit (LSU) nrDNA and partial protein encoding genes including the RNA polymerase II second largest subunit (RPB2), translation elongation factor 1-alpha (TEF1) and -tubulin (TUB2). Based on these results, the subgenera Astromata, Bionectria, Myronectria and Zebrinella are supported within Clonostachys. Furthermore, the genus Sesquicillium is resurrected to accommodate the former subgenera Epiphloea and Uniparietina. The close relationship of Clonostachys and Sesquicillium is strongly supported as both are inferred phylogenetically as sister-genera. New taxa include 24 new species and 10 new combinations. Recognition of Sesquicillium distinguishes species typically forming a reduced perithecial stroma superficially on plant tissue from species in Clonostachys often forming well-developed, through bark erumpent stromata. The patterns of observed perithecial wall anatomies, perithecial wall and stroma interfaces, and asexual morph diversifications described in a previously compiled monograph are used for interpreting ancestral state reconstructions. It is inferred that the common ancestor of Clonostachys and Sesquicillium may have formed perithecia superficially on leaves, possessed a perithecial wall consisting of a single region, and formed intercalary phialides in penicilli of conidiophores. Character interpretation may also allow hypothesising that diversification of morphs occurred then in the two genera independently and that the frequently stroma-linked Clonostachys morphs evolved together with the occupation of woody host niches and mycoparasitism.