The new species, Polysponna terricola Kantvilas from south-eastern Tasmania, is described and compared to other species in the genus. It is well characterized by a range of morphological, anatomical and ecological characters, especially by the presence of oil paraphyses and oil droplets in the hymenium, features unknown in other members of the genus. Species of Polysporina are best separated by the following characters: size and morphology of the apothecia, size of ascospores, thickness of paraphyses and height of the hymenium. The combinations P. ferniginea (Lettau) M. Steiner and P. pusilla (Anzi) M. Steiner are validated. A key to the taxa studied is provided.