Mycena aurantiomarginata is a saprobic fungus, deriving nutrients from decomposing organic matter found on the forest floor, such as needle carpets. Fruit bodies of the fungus grow scattered, in groups, or in tufts under conifers (usually spruce and fir), and are often found on moss. In North America, it is found in California, Washington, Oregon, and British Columbia, and the species is widely distributed in western and northern Europe. In Central America, the mushroom has been collected on the summit of Cerro de la Muerte in the Cordillera de Talamanca, Costa Rica, on leaf litter of Comarostaphylis arbutoides (a highly branched evergreen shrub or tree in the heath family). In 2010, it was reported from Hokkaido in northern Japan, where it was found growing on Picea glehnii forest litter in early winter. It has also been recorded from North Africa.