Ecological niche breadth and the mechanisms facilitating its evolution are fundamental to understanding adaptation to changing environments, persistence of generalist and specialist lineages and the formation of new species. Woody substrates are structurally complex resources utilized by organisms with specialized decay machinery. Wood-decaying fungi represent ideal model systems to study evolution of niche breadth, as they vary greatly in their host range and preferred decay stage of the substrate. In order to dissect the genetic basis for niche specialization in the invasive brown rot fungusSerpula lacrymans, we used phenotyping and integrative analysis of phylogenomic and transcriptomic data to compare this species to wild relatives in the Serpulaceae with a range of specialist to generalist decay strategies. Our results indicate specialist species have rewired regulatory networks active during wood decay towards decreased reliance on enzymatic machinery, and therefore nitrogen-intensive decay components. This shift was likely accompanied with adaptation to a narrow tree line habitat and switch to a pioneer decomposer strategy, both requiring rapid colonization of a nitrogen-limited substrate. Among substrate specialists with narrow niches, we also found evidence for pathways facilitating reversal to generalism, highlighting how evolution may move along different axes of niche space.