Fossils of Sarcosaurus were found in the Lower Lias of England. The type species, Sarcosaurus woodi, was first described by Charles William Andrews in 1921 shortly after a partial skeleton had been found by S.L. Wood near Barrow-on-Soar. The generic name is derived from Greek sarx, "flesh". The specific name honours Wood. The holotype, BMNH 4840/1, consists of a pelvis, a vertebra and the upper part of a femur. The preserved length of the femur is 31.5 centimetres.
A second species, Sarcosaurus andrewsi, was named by Friedrich von Huene in 1932, based on a 445 millimetres long tibia, BMNH R3542, described by Arthur Smith Woodward in 1908 and found near Wilmcote. Confusingly von Huene in the same publication named the very same fossil Magnosaurus woodwardi. Later he made a choice for S. andrewsi to be the valid name. In 1974 S. andrewsi was reclassified as Megalosaurus andrewsi by Michael Waldman, on the probably erroneous assumption it was a megalosaurid. A later study concluded the two species to be indistinguishable except for size, but other authors consider any identity to be unprovable as there are no comparable remains and conclude both species to lack autapomorphies and therefore to be nomina dubia.
Von Huene in 1932 referred a partial skeleton from the collection of the Warwick Museum to S. woodi but the identity is unproven; in 1995 it was given the generic name "Liassaurus" but this has remained a nomen nudum.
Andrews originally assigned Sarcosaurus to the Megalosauridae. The first to suggest a more basal position was Samuel Paul Welles who placed it in the Coelophysidae. Later analyses resulted in either a position in the Ceratosauria, or in the Coelophysoidea.