A cutting and mulching housing for a riding or lawn tractor accommodating a rotary cutter therein, said cutter having a grass clipping recirculating chute and a separate grass clipping discharge chute with is elevated relative to said recirculating chute. The bifurcated chute assembly separates and repeatedly recuts larger clippings and thereafter discharges them through said elevated chute. The rapid motion of the rotary cutting blade over the exit of the lower recycling chute provides a radial flow of air thereacross which circulates and directs larger, heavier clippings back into the cutting blade to be finely mulched. The elevated discharge chute may be directed into a collection device connected thereto or downwardly back into the lawn. The mulching housing may be factory installed or retrofitted onto existing lawn mowers.