Mushrooms have long been celebrated in traditional cuisine and medicine due to its rich nutritional composition and diverse bioactive compounds. Mushroom species such as Agaricus bisporus, Lentinula edodes and Pleurotus ostreatus are edible and are specially valued for their wide range of therapeutic activities, which includes anti-oxidant, anti-cancer, immunomodulatory, anti-histamine and nephroprotective activity. Bioactive compounds such as terpenoids, beta-glucans and polysaccharides, derived from mushrooms, contribute to prevention of various chronic diseases. This chapter highlights the growing significance of mushrooms as functional foods and therapeutic agents, along with different technological advancements. Mushroom cultivation, therapeutic efficacy and bioactive yield are enhanced through various biotechnological advancements like fermentation, tissue culture and genetic engineering. Different innovations in enzyme engineering and biomass utilization also help in nutraceutical development. Moreover, mushroom farming, supply chains and quality control are revolutionized by AI and robotics. However, despite their immense potential, there are various challenges and limitations that hinder their broader adaptation. Nevertheless, nanotechnology integration and omics approaches provide future direction to optimize production and enhance bioactive compounds. Overall, with continued research and industrial focus, mushrooms can be a sustainable and powerful avenue for functional food innovation and therapeutic application.