CFEM domain commonly occurs in fungal extracellular membrane proteins. To provide insights for understanding putative functions of CFEM, we investigate the evolutionary dynamics of CFEM domains by systematic comparative genomic analyses among diverse animals, plants, and more than 100 fungal species, which are representative across the entire group of fungi. We here show that CFEM domain is unique to fungi. Experiments using tissue culture demonstrate that the CFEM-containing ESTs in some plants originate from endophytic fungi. We also find that CFEM domain does not occur in all fungi. Its single origin dates to the most recent common ancestors of Ascomycota and Basidiomycota, instead of multiple origins. Although the length and architecture of CFEM domains are relatively conserved, the domain-number varies significantly among different fungal species. In general, pathogenic fungi have a larger number of domains compared to other species. Domain-expansion across fungal genomes appears to be driven by domain duplication and gene duplication via recombination. These findings generate a clear evolutionary trajectory of CFEM domains and provide novel insights into the functional exchange of CFEM-containing proteins from cell-surface components to mediators in host-pathogen interactions.