Inocybe is a large genus of fungi occurring across the globe, particularly in temperate and boreal regions. The identification of many of the species is notoriously difficult. Inocybe squalida C. Kaufholtz-Couture sp. nov. was discovered during biodiversity surveys in Québec (Canada). Its morphological characteristics and spermatic odour are typical of those of the genus Inocybe. Macroscopic characteristics include a pileus dissociated into small scales and fibrils. The lamellae, which have a rounded, sinuate to emarginate insertion, are yellowish at first, becoming olive brown due to the presence of spores. The stipe is non-darkening. Microscopic characteristics include hymenial cystidia (thick-walled sterile cells with apical crystals of calcium oxalate) and brown, triangular-shaped gibbose basidiospores. These are similar to those of the common species, Inocybe curvipes, and to those of lesser-known related species. A review of the Canadian and world literature, together with support from molecular analyses, confirm that Inocybe squalida is a species new to science. A detailed description of the species is provided, along with photographs, results of the molecular analysis of the ITS marker illustrated by a phylogenetic tree, and a discussion on its morphological and phylogenetic affinities.