As part of a project investigating diversity in early terrestrial vegetation, new specimens of the enigmatic, non-embryophyte Nematasketum diversiforme have been described from Lower Devonian strata in the Welsh Borderland to elucidate its affinities and role in the ecosystem. Charcoalified fragments were investigated using scanning electron microscopy. They show for the first time that at least part of the organism possessed an axial organization with a peripheral zone forming a rind. The specimens differ from the closely-allied Prototaxites by the presence of unevenly thickened tubes, both in well-defined areas (medullary spots), hypothesized as being the sites of hyphal generation, and in the matrix of wide, smooth-walled and narrow hyphae. Two specimens that show branching but no unequivocal thickened tubes are best assigned to the prototaxalean complex. The fragments, with longitudinally aligned wide tubes in a matrix of much branched, narrower examples, resemble rhizomorphs and cords of extant basidiomycote fungi and are interpreted as exploratory and translocating organs. Postulated affinities of Prototaxites include algae, fungi and hepatics, with the latter interpreting the fossils as rolled-up liverwort mats. Our studies on a close ally of Prototaxites show no evidence for hepatic affinity, although similarities with fungal linear mycelial structures. © 2011 The Linnean Society of London, Botanical Journal of the Linnean Society, 2012, 168, 1–18.