Mushroom biotechnology is emerging as a multidisciplinary field with wide-ranging applications in food, health, and environmental systems. Recent advances in genetic engineering, nonthermal processing, and precision cultivation have significantly improved the functional and commercial potential of edible and medicinal fungi. Innovations, including high-pressure processing, electrohydrodynamic drying, and smart packaging technologies, improve shelf life, nutrient preservation, and market accessibility. Synthetic biology technologies are increasingly being used to improve fungal strains for specific bioactive component production, while mycelium-based materials help build sustainable packaging and biomaterials. Despite promising advances, obstacles persist in scaling up, postharvest deterioration, regulatory compliance, and economic viability. Addressing these challenges demands a multidisciplinary strategy that includes molecular biology, process engineering, and circular economy solutions. The ongoing evolution of mushroom biotechnology holds transformative possibilities for functional foods, medicines, bioeconomy models, and climate-resilient systems.