How plants and microbes recognize each other and interact to form long-lasting relationships remains one of the central questions in cellular communication. The symbiosis between the filamentous fungus Cladonia grayi and the single-celled green alga Asterochloris sp. was used to determine fungal and algal genes upregulated in vitro in early lichen development. cDNA libraries of upregulated genes were created with suppression subtractive hybridization in the first two stages of lichen development. Quantitative PCR subsequently was used to verify the expression level of 41 and 33 candidate fungal and algal genes respectively. Induced fungal genes showed significant matches to genes putatively encoding proteins involved in self and non-self recognition, lipid metabolism, and negative regulation of glucose repressible genes, as well as to a putative d-arabitol reductase and two dioxygenases. Upregulated algal genes included a chitinase-like protein, an amino acid metabolism protein, a dynein-related protein and a protein arginine methyltransferase. These results also provided the first evidence that extracellular communication without cellular contact can occur between lichen symbionts. Many genes showing slight variation in expression appear to direct the development of the lichen symbiosis. The results of this study highlight future avenues of investigation into the molecular biology of lichen symbiosis.