The Clitocybaceae is a recently established family. Currently, the infrafamilial divisions and relationships within the family are vague due to limited sampling and genes employed for phylogenetic analysis. Some mushrooms of the family contain the neurotoxic muscarine, which has caused many severe and even deadly poisonings worldwide. However, the taxonomic distribution and evolution of the toxin within the family is largely unknown. In this study, phylogenetic analyses based on nucleotide sequences of ITS and of six molecular loci (ITS, LSU, TEF1, RPB1, RPB2 and ATP6), plus a phylogenomic analysis based on 485 single-copy orthologous genes, were performed to reconstruct the framework of Clitocybaceae. BEAST analysis was used to estimate the divergence times within the family. Additionally, biochemical analysis for muscarine was conducted of 32 representative species. Based on these analyses, an updated classification of Clitocybaceae into six genera (Clitocybe, Collybia, Dendrocollybia, Lepista, Pseudolyophyllum, and Singerocybe) is proposed. The genus Collybia is emended to accommodate four subgenera (Collybia, Crassicybe, Leucocalocybe, and Macrosporocybe). Seventeen new Chinese species and 15 new combinations are proposed. Keys to the genera of Clitocybaceae and the subgenera of Collybia, as well as to the known species of Clitocybe and Collybia subgen. Collybia in China, are presented. In addition, muscarine was detected in 18 species, and these muscarine-containing species formed a major monophyletic clade within Collybia subgen. Collybia. Finally, our phylogenetic, phylogenomic, chemotaxonomic and molecular dating results indicate that the Clitocybaceae is a natural group estimated to have arisen some 60 million years ago, and in this family, muscarine has evolved only once circa 20 million years ago without later losses.