The Mouse-grey Flycatcher is distributed from the extreme south-west of Colombia through Ecuador to the north-west of Peru. See the distribution map at Birdlife International. It is found in shrub, clearings and gardens up to about 2,700 metres.

Many authorities regard it as a sub-species of Bran-coloured Flycatcher M. fasciatus but the basis of its split is an orange-rufous rather than yellow coronal patch, grey rather than brown streaks on its breast, white versus buffy underparts, mouse-grey versus bran-coloured upperparts and several vocal differences.