The epithet pygmaea is derived from the Latin pygmaeus (dwarf ), in reference to the small form of this species.

Drosera pygmaea is widespread in southeastern Australia, as well as near Albany and Karridale in Western Australia. It is also found in New Zealand (North Island: far north, central volcanic plateau; and South Island: northwestern and southern tips). It is the only pygmy Drosera to be found outside of Western Australia.

It grows a wide range of nutrient poor soils and conditions. On the margins of lakes and swamps it can be submerged for weeks at a time. In alpine areas it can be covered by snow for months and, in heath near Sydney, it occurs on laterite soils that are baked dry for weeks each year. In New Zealand, it can be found in sub-alpine ash deposits on the volcanic plateau and in mossy loam in the South Island.

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