Species discrimination within the gigartinalean red algal genus Hypnea has been controversial. To help resolve the controversy and explore phylogeny within the genus, we determined rbcL sequences from 30 specimens of 23 species within the genus, cox1 from 22 specimens of 10 species, and psaA from 16 species. We describe H. caespitosa as a new species characterized by a relatively slender main axis; a pulvinate growth habit with entangled, anastomosing, and subulate uppermost branches; and unilaterally borne tetrasporangial sori. The new species occurs in the warm waters of Malaysia, the Philippines, and Singapore. The phylogenetic trees of rbcL, psaA, and cox1 sequences showed a distant relationship of H. caespitosa to H. pannosa J. Agardh from Baja California and the marked differentiation from other similar species. The rbcL + psaA tree supported monophyly of the genus with high bootstrap values and posterior probabilities. The analysis revealed three clades within the genus, corresponding to three sections, namely, Virgatae, Spinuligerae, and Pulvinatae first recognized by J. G. Agardh. Exceptions were H. japonica T. Tanaka in Pulvinatae and H. spinella (C. Agardh) Kütz. in Spinuligerae.