A new freshwater species of Ulvella, U. tongshanensis H. Zhu et G. Liu, is described from material collected from rocks under small waterfalls in Hubei Province, China. This unusual species differs from other species in the genus by the macroscopic and upright parenchymatous thalli, and by the particular habitat (most Ulvella species occur in marine environments). Phylogenetic analyses of plastid encoded rbcL and tufA, and nuclear 18S rDNA sequences, pointed towards the generic placement of U. tongshanensis and also showed a close relationship with two other freshwater species, Ulvella bullata (Jao) H. Zhu et G. Liu, comb. nov. and Ulvella prasina (Jao) H. Zhu et G. Liu, comb. nov. The latter two were previously placed in the genus Jaoa and are characterized by disc–shaped to vesicular morphology. Our study once again shows that traditionally used morphological characters are poor indicators for phylogenetic relatedness in morphologically simple algae like the Ulvellaceae. Thus, the morphological circumscription of the genus Ulvella is here expanded to include: (1) thalli that are uniseriate in basal and apical parts, and parenchymatous in the middle portion with distinct differentiation of an unbranched dorsal side and a ventral side developing many short branches, and (2) epibiotic or epilithic, disc–shaped to vesicular thalli with a di– or tristromatic structure.