Lysmata arvoredensis sp. nov. inhabits temperate waters in the south coast of Brazil and is named in tribute to the Marine Protected Area REBIO Arvoredo. This is the fourth species belonging to the genus Lysmata recorded for the region and the ninth for Brazil. L. arvoredensis sp. nov. can be distinguished from other species of Lysmata by the presence of a nearly completely fused accessory branch with a single free unguiform segment on the outer antennular flagellum; a rostrum with seven dorsal (2+5) and three ventral teeth; a stylocerite with a pointed tip bearing mesial setae; a second pereiopod with 22–24 carpal subsegments and 14–16 subsegments in the merus; a merus of the third pereiopod with five ventrolateral and 12 ventral spines on the propodus; and its color pattern, with red bands and patches in pleonites 2–3 that resemble a mask in dorsal view. Molecular characters demonstrate that L. arvoredensis sp. nov. is most closely related to other species of Lysmata belonging to the Neotropical and Cleaner clades. To support future ecological studies in the region, identification keys to the species of Lysmata recorded in the southwestern Atlantic Ocean are provided.