Mycena luteovariegata is an uncommon species associated with semi‑natural grasslands, dune systems, and other unimproved open habitats. These long‑established grassland systems are a vulnerable habitat, undergoing well‑documented declines in both extent and ecological quality across Europe. Pressures include agricultural intensification, nutrient enrichment, sward closure, scrub encroachment, and tree planting on ancient grassland, all of which reduce the continuity and condition of the habitat this species depends on.

Because M. luteovariegata is tied to a declining and increasingly fragmented habitat, and is infrequently recorded within it, an assessment is warranted to determine its conservation status within the wider pattern of losses affecting grassland fungi.