Mushrooms are a rich source of dietary fiber, minerals, vitamins, and secondary metabolites (tannins, polyketides, flavonoids, and alkaloids). The therapeutic role of mushrooms includes anti-inflammatory, anticancer, antiviral, antidiabetic, and antioxidant. Nanoencapsulation of bioactive compounds derived from mushrooms can be a promising way out of various lifestyle-associated diseases through targeted approaches. However, the clinical application of these bioactive compounds is limited by challenges such as poor stability and low bioavailability. Encapsulation of bioactive compounds by nanotechnology confronts this difficulty by preventing degradation, target delivery, and controlled release. Mushroom has various bioactive compounds like (1,3) (1,6)-β-d-glucans, lentinan, grifolan, polysaccharide–peptide complex, polysaccharide protein complex, triterpenes, phenolic compounds, and sterols. This chapter provides an overview of various extraction methods for bioactive compounds from mushrooms. Various nanoencapsulation techniques, such as liposomes, polymeric nanoparticles, nanoemulsions, and lipid-based carriers employed for mushroom-derived bioactive compounds, are also discussed, including the design, preparation, and characterization of nanoparticle systems.