Rare lignicolous species with boreal distribution more or less confined to old-growth forests. Endangered by increasing logging and fragmentation of boreal forests.

Circumboreal species with scattered distribution in temperate zone.

In the main area of its distribution, the species inhabits old growth spruce forest of the taiga type, in central and southern Europe also in other types of natural forest such as mixed mountain spruce-fir-beech forests. It was recorded also from pure Abies stands or even deciduous forests, usually in places with little human impact and also in sites with stable and humid conditions. Skeletocutis odora is a lignicolous saprotrophic fungus, occurting only on fallen logs (or rarely branches attached to fallen logs), mostly moderately decayed. Main substrate is Picea, but it is known to grow also on Abies alba and Pinus sylvestris, less so on other gymnosperms. It is known to colonize also wood of angiosperm trees (Fagus sylvatica, Populus tremula and some others).