Although the fungal symbionts of many lichens have fruiting structures on or within their thalli and may release numerous spores that develop into fungi, indirect evidence suggests that natural unions of fungi and algae occur only rarely among some lichen groups, if indeed they occur at all. In addition, free-living potential phycobionts are not widely distributed; for example, despite repeated searches, free-living populations of Trebouxia have not been found. This paradox, an abundance of fungal spores and a lack of algae capable of forming associations, implies that the countless spores produced by lichen fungi are functionless, at least so far as propagation of the association is concerned. Some photobionts, including species of Nostoc and Trentpohlia, can exist as free-living populations, so that natural reassociations could occur in a few lichens.

Some lichens have solved or bypassed the problem of re-forming the association. In a few lichens (e.g., Endocarpon, Staurothele) algae grow among the tissues of a fruiting body and are discharged along with fungal spores; such phycobionts are called hymenial algae. When the spores germinate, the algal cells multiply and gradually form lichens with the fungus. Other lichens form structures, especially soredia, that are effective in distributing the association. A soredium, consisting of one or several algal cells enveloped by threadlike fungal filaments, or hyphae, may develop into a thallus under suitable conditions. Lichens without soredia may propagate by fragmentation of their thalli. Many lichens develop small thalloid extensions, called isidia, that also may serve in asexual propagation if broken off from the thallus.

In addition to these mechanisms for propagation, the individual symbionts have various methods of reproduction. For example, ascolichens (lichens in which the dominant mycobiont is an ascomycete) form fruits called ascocarps that are similar to those of free-living ascomycetes, except that the mycobiont’s fruits are capable of producing spores for a longer period of time. The algal symbiont within the lichen thallus reproduces by the same methods as its free-living counterpart.

Most lichen phycobionts are penetrated to varying degrees by specialized fungal structures called haustoria. Trebouxia lichens have a pattern in which deeply penetrating haustoria are prevalent in associations lacking a high degree of thalloid organization. On the other hand, superficial haustoria prevail among forms with highly developed thalli. Lecanora and Lecidea, for example, have individual algal cells with as many as five haustoria that may extend to the cell centre. Alectoria and Cladonia have haustoria that do not penetrate far beyond the algal cell wall. A few phycobionts, such as Coccomyxa and Stichococcus, which are not penetrated by haustoria, have thin-walled cells that are pressed close to fungal hyphae.

The flow of nutrients and metabolites between the symbionts is the basic foundation of the symbiotic system. A simple carbohydrate formed in the algal layer eventually is excreted, taken up by the mycobiont, and transformed into a different carbohydrate. The release of carbohydrate by the phycobiont and its conversion by the mycobiont occur rapidly. Whether the fungus influences the release of carbohydrate by the alga is not known with certainty, but it is known that carbohydrate excretion by the alga decreases rapidly if it is separated from the fungus.

Carbohydrate transfer is only one aspect of the symbiotic interaction in lichens. The alga may provide the fungus with vitamins, especially biotin and thiamine, important because most lichen fungi that are grown in the absence of algae have vitamin deficiencies. The alga also may contribute a substance that causes structural changes in the fungus since it forms the typical lichen thallus only in association with an alga.

One contribution of the fungus to the symbiosis concerns absorption of water vapour from the air; the process is so effective that, at high levels of air humidity, the phycobionts of some lichens photosynthesize at near-maximum rates. The upper region of a thallus provides shade for the underlying algae, some of which are sensitive to strong light. In addition, the upper region may contain pigments or crystals that further reduce light intensity and act as filters, absorbing certain wavelengths of light.

Lichens synthesize a variety of unique organic compounds that tend to accumulate within the thallus; many of these substances are coloured and are responsible for the red, yellow, or orange colour of lichens.

A lichen thallus or composite body has one of two basic structures. In a homoiomerous thallus, the algal cells, which are distributed throughout the structure, are more numerous than those of the fungus. The more common type of thallus, a heteromerous thallus, has four distinct layers, three of which are formed by the fungus and one by the alga. The fungal layers are called upper cortex, medulla, and lower cortex. The upper cortex consists of either a few layers of tightly packed cells or hyphae that may contain pigments. A cuticle may cover the cortex. The lower cortex, which is similar in structure to the upper cortex, participates in the formation of attachment structures called rhizines. The medulla, located below the algal layer, is the widest layer of a heteromerous thallus. It has a cottony appearance and consists of interlaced hyphae. The loosely structured nature of the medulla provides it with numerous air spaces and allows it to hold large amounts of water. The algal layer, about three times as wide as a cortex, consists of tightly packed algal cells enveloped by fungal hyphae from the medulla.

A heteromerous thallus may have a stalked (fruticose), crustlike (crustose), or leafy (foliose) form; many transitional types exist. It is not known, moreover, which growth form is primitive and which is advanced. Fruticose lichens, which usually arise from a primary thallus of a different growth form (i.e., crustose, foliose), may be shrubby or pendulous or consist of upright stalks. The fruticose form usually consists of two thalloid types: the primary thallus is crustlike or lobed; the secondary thalli, which originate from the crust or lobes of the primary thallus, consist of stalks that may be simple, cup-shaped, intricately branched, and capped with brown or red fruiting bodies called apothecia. Fruticose forms such as Usnea may have elongated stalks with a central solid core that provides strength and elasticity to the thallus.

The crustose thallus is in such intimate contact with the surface to which it is attached that it usually cannot be removed intact. Some crustose lichens grow beneath the surface of bark or rock so that only their fruiting structures penetrate the surface. Crustose lichens may have a hypothallus—i.e., an algal-free mat of hyphae extending beyond the margin of the regular thallus. Crustose form varies: granular types such as Lepraria, for example, have no organized thalloid structure; but some Lecanora species have highly organized thalli, with lobes that resemble foliose lichens lacking a lower cortex.

The foliose forms are flat, leaflike, and loosely attached to a surface. The largest known lichens have a foliose form; species of Sticta may attain a diameter of about a metre. Other common foliose genera include Cetraria, Parmelia, Peltigera, and Physcia. Umbilicaria, called the common rock tripe, differs from other foliose forms in its mode of attachment in that its platelike thallus attaches at the centre to a rock surface.

The complex fruiting bodies (ascocarps) of lichen fungi are of several types. The factors that induce fruiting in lichens have not been established with certainty. Spores of lichen fungi (ascospores) are of extremely varying sizes and shapes; e.g., Pertusaria has one or two large spores in one ascus (saclike bodies containing the ascospores), and Acarospora may have several hundred small spores per ascus. Although in most species the ascospore generally has one nucleus, it may be single-celled or multicellular, brown or colourless; the Pertusaria spore, however, is a single cell containing 200 nuclei. Another type of fungal spore may be what are sometimes called spermatia (male fungal sex cells) or pycnidiospores; it is not certain that these structures have the ability to germinate and develop into a fungal colony. Few lichen fungi produce conidia, a type of asexual spore common among ascomycetes.

The metabolic activity of lichens is greatly influenced by the water content of the thallus. The rate of photosynthesis may be greatest when the amount of water in the thallus is from 65 to 90 percent of the maximum. During drying conditions, the photosynthetic rate decreases; below 30 percent it is no longer measurable. Although respiration also decreases rapidly below 80 percent water content, it persists at low rates even when the thallus is air-dried. Since lichens have no mechanisms for water retention or uptake from the surface to which they are attached, they very quickly lose the water vapour they absorb from the air. The rapid drying of lichens is a protective device; i.e., a moisture-free lichen is more resistant to temperature and light extremes than is a wet one. Frequent drying and wetting of a thallus is one of the reasons lichens have a slow growth rate.

Maximum photosynthesis in lichens takes place at temperatures of 15–20 °C (59–68 °F). More light is needed in the spring and summer than in the winter. The photosynthetic apparatus of lichens is remarkably resistant to cold temperatures. Even at temperatures below 0 °C (32 °F), many lichens can absorb and fix considerable amounts of carbon dioxide. Respiration is much less at low temperatures so that, in nature, the winter months may be the most productive ones for lichens.