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Psilocybe mexicana grows alone or in small groups among moss along roadsides and trails, humid meadows or cornfields, in particular in the grassy areas bordering deciduous forests.

Psilocybe mexicana may form sclerotia, a dormant form of the organism, which affords it some protection from wildfires and other natural disasters. Like several other psilocybin mushrooms in the genus, Psilocybe mexicana has been consumed by indigenous North American and Central American peoples for its entheogenic effects.