A large region of suppressed recombination surrounds the sex-determining locus of the self-fertile fungus Neurospora tetrasperma. This region encompasses nearly one-fifth of the N. tetrasperma genome and suppression of recombination is necessary for self-fertility. The similarity of the N. tetrasperma mating chromosome to plant and animal sex chromosomes and its recent origin (<5 MYA), combined with a long history of genetic and cytological research, make this fungus an ideal model for studying the evolutionary consequences of suppressed recombination. Here we compare genome sequences from two N. tetrasperma strains of opposite mating type to determine whether structural rearrangements are associated with the nonrecombining region and to examine the effect of suppressed recombination for the evolution of the genes within it. We find a series of three inversions encompassing the majority of the region of suppressed recombination and provide evidence for two different types of rearrangement mechanisms: the recently proposed mechanism of inversion via staggered single-strand breaks as well as ectopic recombination between transposable elements. In addition, we show that the N. tetrasperma mat a mating-type region appears to be accumulating deleterious substitutions at a faster rate than the other mating type (mat A) and thus may be in the early stages of degeneration.