The mycoparasitic fungus Hypomyces perniciosus causes wet bubble disease of mushrooms, particularly Agaricus bisporus. The genome of a highly virulent strain of H. perniciosus HP10 was sequenced and compared to three other fungi from the order Hypocreales that cause disease on A. bisporus. H. perniciosus genome is ~44 Mb, encodes 10,077 genes and enriched with transposable elements up to 25.3%. Phylogenetic analysis revealed that H. perniciosus is closely related to Cladobotryum protrusum and diverged from their common ancestor ~156.7 million years ago. H. perniciosus has few secreted proteins compared to C. protrusum and Trichoderma virens, but significantly expanded protein families of transporters, protein kinases, CAZymes (GH 18), peptidases, cytochrome P450, and SMs that are essential for mycoparasitism and adaptation to harsh environments. This study provides insights into H. perniciosus evolution and pathogenesis and will contribute to the development of effective disease management strategies to control wet bubble disease.