Psathyrella ammophila was first described in 1868 by Michel Charles Durieu de Maisonneuve and Joseph-Henri Léveillé in one of Durieu de Maisonneuve's publications on the flora and fauna of Algeria, Exploration scientifique de l'Algérie: Sciences naturelles, botanique.
The genus name Psathyrella is a diminutive form of Psathyra, derived from the Greek word meaning "friable", psathuros (ψαθυρος).