The homoscleromorph sponge Oscarella carmela, first described from central California, USA is shown to represent two superficially similar but both morphologically and phylogenetically distinct species that are co-distributed. We here describe a new species as Oscarella pearsei, sp. nov. and re-describe Oscarella carmela; the original description was based upon material from both species. Further, we correct the identification of published genomic/transcriptomic resources that were originally attributed to O. carmela, and present new Illumina-sequenced transcriptome assemblies for each of these species, and the mitochondrial genome sequence for O. pearsei sp. nov. Using SSU and LSU ribosomal DNA and the mitochondrial genome, we report the phylogenetic relationships of these species relative to other Oscarella species, and find strong support for the placement of O. pearsei sp. nov. in a distinct clade within genus Oscarella defined by the presence of spherulous cells that contain paracrystalline inclusions; O. carmela lacks this cell type. Oscarella pearsei sp. nov and O. carmela can be tentatively distinguished based upon gross morphological differences such as color, surface texture and extent of mucus production, but can be more reliably identified using mitochondrial and nuclear barcode sequencing, ultrastructural characteristics of cells in the mesohyl, and the morphology of the follicle epithelium which surrounds the developing embryo in reproductively active individuals.