Wallemia (Wallemiales, Wallemiomycetes) is a genus of xerophilic Fungi of uncertain phylogenetic position within Basidiomycota. Most commonly found as food contaminants, species of Wallemia have also been isolated from hypersaline environments. The ability to tolerate environments with reduced water activity is rare in Basidiomycota. We sequenced the genome of W. sebi in order to understand its adaptations for surviving in osmotically challenging environments, and we performed phylogenomic and ultrastructural analyses to address its systematic placement and reproductive biology. W. sebi has a compact genome (9.8 Mb), with few repeats and the largest fraction of genes with functional domains compared with other Basidiomycota. We applied several approaches to searching for osmotic stress-related proteins. In silico analyses identified 93 putative osmotic stress proteins; homology searches showed the HOG (High Osmolarity Glycerol) pathway to be mostly conserved. Despite the seemingly reduced genome, several gene family expansions and a high number of transporters (549) were found that also provide clues to the ability of W. sebi to colonize harsh environments. Phylogenetic analyses of a 71-protein dataset support the position of Wallemia as the earliest diverging lineage of Agaricomycotina, which is confirmed by septal pore ultrastructure that shows the septal pore apparatus as a variant of the Tremella-type. Mating type gene homologs were identified although we found no evidence of meiosis during conidiogenesis, suggesting there may be aspects of the life cycle of W. sebi that remain cryptic.