There are a number of fungi that can grow in lawns but the most serious is the fungi Marasmius oreades which produces brown toadstools and creates the fairy rings. The fungus spreads by airborne spores which colonise the grass roots.
An irregular ring of dead grass appears and spreads outwards across the lawn. The fungus can spread outwards by about 30cm (12") per year. The mycelium is impervious to water, resulting in the death of the grass. The dead grass puts nutrients back in the soil resulting in greener than normal areas either side of the dead grass.
This is a difficult fungus to eradicate as there are no chemicals available for its control. Spiking the area of dead grass with a fork will help water to penetrate down to the roots and additional feeding is also helpful.
It is sometimes recommended to dig out the dead grass, and the grass extending 30cm (12") beyond the edges of the ring, and to the same depth, refilling the area with fresh topsoil. If this is carried out take care when disposing of the contaminated soil to prevent spreading the disease to new areas.
Affected areas should be mowed separately and the mowings burnt to prevent further spread of the disease. Any toadstools that appear should be removed before the cap opens and spreads further spores.