Stropharia rugosoannulata is a Holarctic-Sub-Atlantic distributed species that has been recorded in Japan, North America, Argentina, and Europe. In Europe, finds are reported from Italy, France, the Netherlands, Great Britain, Switzerland, Austria, Germany, the Czech Republic, and Poland; northward, the species occurs as far north as Norway and Sweden. In Europe the species has only been found since the 1950s, possibly introduced from North America. In Germany, the Giant Drabble occurs scattered in the north and northwest, otherwise it is rare. The species is spreading in Germany, benefiting among other things from the increasing use of wood chips and bark mulch in gardens and parks.
In deciduous forests and/or among hardwood litter or in soils rich in undecayed woody material, especially common in wood chips used in urban/suburban ornamental plantings.