Ascomycete Cordyceps sensu lato consists of hundreds of species of fungi capable of infecting different insects. Species of these fungi are either valued traditional Chinese medicines or used for biocontrol of insect pests. Phylogenomic analysis indicated that fungal entomopathogenicity has evolved for multiple times, and the species of Cordyceps were diverged from the mycoparasite or plant endophyte. Relative to plant pathogens and saprophytes, Cordyceps species demonstrate characteristic genome expansions of proteases and chitinases that are used by the fungi to target insect cuticles. Only a single mating-type gene identified in the sequenced species of Cordyceps sensu lato indicates that these fungi are sexually heterothallic, but the gene structure of the mating-type loci and frequency in performing sexual cycle are considerably different between different species. Similar to the model fungus Neurospora crassa, Cordyceps and related fungi contain the full components for RNA interference pathways. However, the mechanism of repeat-induced point mutation varies between different fungi. Epigenetic rather than genetic alterations are majorly responsible for the frequent occurrence of culture degeneration in Cordyceps-related species. Future genetic and epigenetic studies of fungal sexuality controls and culture degeneration mechanisms will benefit the cost-effective applications of Cordyceps and related fungi in pharmaceuticals and agriculture.