Rhizoids played essential roles in the early evolution of land plants. All liverworts, the closest living relatives of the first land plants, produce unicellular rhizoids, except for Haplomitrium. The complex thalloids are uniquely characterized by dimorphic rhizoids: smooth rhizoids like those also produced by the simple thalloid and leafy clades and pegged rhizoids. Although this dimorphism has been long and widely recognized, considerations of its functional basis are few and contradictory. Here we present conclusive cytological and experimental evidence that the function of smooth and pegged rhizoids is markedly different, as reflected by major differences in their structure, physiology and vital status. Mature smooth rhizoids are alive (indeed their main functions in nutrition, anchorage and as conduits for mycobiont entry all depend on living cytoplasm) and dehydration causes irreversible collapse of their cell walls, but pegged rhizoids, which are dead at maturity, function as a highly effective internalized external water‐conducting system, especially within carpocephala. Their cavitation‐resistant, elastic walls ensure retention of functional integrity during periods of desiccation. Our structural and functional data now raise novel hypotheses on patterns of rhizoid evolution in Marchantiopsida and open the way for dissecting the molecular basis of rhizoid morphogenesis in liverworts. © 2013 The Linnean Society of London, Botanical Journal of the Linnean Society, 2014, 174, 68–92.