Phacelia formosula is dominant or co-dominant on the sites on which it is found. Commonly associated genera include Mentzelia, Chrysothamnus, Oryzopsis, Arenaria, Eriogonum, Penstemoa, Rosa, Artemisia, and Phlox. Shifting, friable substrates make this species' habitat vulnerable to degredation. Osterhout grows in sands derived from the Coalmont Formation. These sandy areas are vulnerable to habitat destruction because of their extremely friable nature and very sparse vegetation cover.
Cattle tend to disrupt the sand causing plants to be uprooted.
Plants are trampled by grazing animals. Road work around the known sites, cattle trampling, and off-road vehicles have added to erosion, yet another factor causing loss of habitat and individuals. These threats are current and on-going. The area of occurrence has potential for low-grade coal and oil and gas production, these activities, as well as seismeic and geothermal exploration, may become important should exploration and extraction become profitable in the future. Range improvements may disrupt currently unknown populations.