Withered fungus appears similar to:
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Withered fungus occurs when grass-like fungus does not recieve the ingredients it needs to grow. These include water and soil nutrients, but not sunlight. Science is still unsure about whether "plenty of love" is needed. I'm guessing that potion of corrosion you just uncorked didn't help though.
There aren't actually any in-game effects that will change grass-like fungus to a withered state or back again. Withered fungus behaves identically to grass-like fungus.
Withered fungus is flammable. It can grow in bogs or shallow water, and under dead foliage.