Nematode-trapping fungi are of significant agricultural, forestry and ecological importance. However, relatively little is known about the patterns of genetic variation for any nematode-trapping fungus through its broad geographic and ecological contexts. Here, we analysed DNA sequence variation among strains of the nematode-trapping fungus Arthrobotrys oligospora from China. Our analyses revealed that the Chinese A. oligospora is a species complex with at least three divergent lineages (cryptic species). In addition, there was significant geographic structuring with unambiguous evidence for localized recombination within two of the three lineages in nature. However, evidence for clonal reproduction was also found. We discuss the implications of our results to the conservation and biocontrol application of A. oligospora in agriculture and forestry.