The ancient creature was discovered in 1890 at a prehistoric graveyard in Caithness.
A study has identified it as a 'missing link' in the evolution of vertebrates and given the name Palaeospondylus gunni.
Only two inches long, it had a flat head, an eel like body and lived on the bed of a deep freshwater loch, feeding on leaves and other organic debris.
Palaeopondylus dates back the first vertebrates making their way out of water.
For these pioneering fish, the adaptation of fins into limbs gave rise to mammals, birds and reptiles.
Lead author Professor Tatsuya Hirasawa, of Tokyo University in Japan, said: "Palaeospondylus gunni, from the Middle Devonian period, is one of the most enigmatic fossil vertebrates.
"Its phylogenetic position has remained unclear since its discovery in Scotland more than 130 years ago."
The tiny fossil has been the cause of controversy since its discovery by amateur palaeontologists Marcus and John Gunn - cousins living near Achanarras slate quarry.
Other specimens have since been dug up at the same site with a few more found at two nearby locations. The species is not known anywhere else in the world.
It's a unique example of the early lives of fish on Earth - with features unlike any others known to science.
Palaeopondylus had a strange basket-like apparatus on its snout and well-developed cartilaginous vertebral column but no fins.
High resolution images revealed three semi-circular canals in the skull indicating the inner-ear shape of jawed vertebrates.
Experts have found Palaeospondylus was a primitive type of tetrapod, more closely related to them than cousins that still retained fins.
Prof Hirasawa said: "As a tetrapod, Palaeospondylus possessed an excessively small lower jaw relative to the skull and the mouth opening was retracted."
This is seen in a group of limbless amphibians living today called caecilians. The 'retracted' jaw, along with an unusually flat head shape, probably represented an adaptation for a bottom-dwelling habitat.
The toothless and well-developed jaw suggested it was a suction-feeder - like most aquatic animals today.
Unlike previous studies that have used excavated heads, Prof Hirasawa and colleagues used carefully selected fossils in which the heads remained completely embedded in the rock.
He said: "Choosing the best specimens for the micro-CT scans and carefully trimming away the rock surrounding the fossilised skull allowed us to improve the resolution of the scans.
"Although not quite cutting-edge technology, these preparations were certainly keys to our achievement."
Prof Hirasawa added: "The strange morphology of Palaeospondylus, which is comparable to that of tetrapod larvae, is very interesting from a developmental genetic point of view.
"Taking this into consideration, we will continue to study the developmental genetics that brought about this and other morphological changes that occurred at the water-to-land transition in vertebrate history."
Palaeospondylus gunni is described in science journal Nature. Its fossils suggest the first backboned animals on land may have lived in Scotland, inhabiting in the far north east of the Highlands.