Thallus morphology has traditionally played a major role in the classification of lichenised fungi. We have used a combined dataset of nuITS, nuLSU and mtSSU rDNA sequences to evaluate the phylogenetic relationships between the subcrustose genus Karoowia and the mostly foliose genus Xanthoparmelia. Our phylogenetic analyses using maximum parsimony, maximum likelihood and a Bayesian approach show that Karoowia species do not form a monophyletic group but cluster in different clades nested within Xanthoparmelia. The monophyly of Karoowia either as a separate clade from Xanthoparmelia, or nested within Xanthoparmelia is significantly rejected using alternative hypothesis testing. These results suggest that the usefulness of the phenotypic features used to define Karoowia has been overestimated because the subcrustose growth form has evolved independently in several clades within Xanthoparmelia. Other characters used to circumscribe Karoowia, such as the presence of cylindrical conidia, also occur in Xanthoparmelia, and the differences in rhizine morphology are minimal. Consequently, we propose to reduce Karoowia to synonymy with Xanthoparmelia. The enlarged genus is characterised by the presence of Xanthoparmelia-type lichenan in the hyphal cell walls and the presence of an arachiform vacuolar body in the ascospores. Fifteen new combinations in Xanthoparmelia and the new name Xanthoparmelia mucinae for Karoowia squamatica are made.