Increasing nitrogen (N) deposition often tends to negatively impact the functions of belowground ectomycorrhizal networks, although the exact molecular mechanisms underlying this trait are still unclear. Here, we assess how the root-associated fungus Clitopilus hobsonii establishes an ectomycorrhiza-like association with its host tree Populus tomentosa and how this interaction is favored by organic N over mineral N. The establishment of a functional symbiosis in the presence of organic N promotes plant growth and the transfer of 15N from the fungus to above ground plant tissues. Genomic traits and in planta transcriptional signatures suggest that C. hobsonii may have a dual lifestyle with saprotrophic and mutualistic traits. For example, several genes involved in the digestion of cellulose and hemicellulose are highly expressed during the interaction, whereas the expression of multiple copies of pectin-digesting genes is tightly controlled. Conversely, the nutritional mutualism is dampened in the presence of ammonium (NH4+) or nitrate (NO3-). Increasing levels of NH4+ led to a higher expression of pectin-digesting genes and a continuous increase in hydrogen peroxide production in roots, whereas the presence of NO3- resulted in toxin production. In summary, our results suggest that C. hobsonii is a facultative ectomycorrhizal fungus. Access to various forms of N acts as an on/off switch for mutualism caused by large-scale fungal physiological remodeling. Furthermore, the abundance of pectin-degrading enzymes with distinct expression patterns during functional divergence after exposure to NH4+ or organic N is likely to be central to the transition from parasitism to mutualism.