Pannaria isabellina is transferred from Psoroma to Pannaria as it lacks the amyloid apical ascus structure characteristic of Psoroma. However, it has an isolated position within Pannaria because of its lichenized squamules developing horizontally on a thin, filmy prothallus, and its thallus chemistry characterized by the norstictic acid chemosyndrome. It also has a sclerenchymatous epicortex and a characteristic perispore with gibbose wall swellings and long flagella-like apical extensions; both characters are not often found and are still insufficiently studied within the genus Pannaria. The gelatinous, long flagella-like apical extensions of the perispores probably serve to anchor the ascospores to thin and vertical substrata; the species seems to be concentrated in forest margins of evergreen forests along the coast of Chile, except in the Valdivian rainforest region where it extends further east.