Growing amounts of agricultural residues contribute to serious environmental issues like soil degradation and greenhouse gas emissions. Transforming these wastes into valuable resources aligns with the principles of sustainable agriculture and the circular economy. An alternative, novel and sustainable method of converting agricultural waste into nutrient-dense food, bioactive compounds, and biofertilisers is to grow mushrooms. A large amount of agricultural residues annually generated contains high content of lignocellulosic compounds. These rich organic compounds are worthy to use as substrates for mushroom growth. This study looks at the possibility of various agricultural wastes like sugarcane bagasse, corn stalks, wheat straw, and paddy straw as substrates for environment-friendly mushroom cultivation. In this context, it is emphasised on the choice of mushroom species suitable for waste-based farming, cultivation techniques, and substrate preparation processes. Additionally covered in the analysis are recent advancements in biotechnology, advances in substrate pre-treatment, and the socioeconomic and environmental benefits of integrating mushroom growing into agri-waste management strategies. Potential future advancements for the extension of the waste-to-wealth model are examined, along with issues including market accessibility, contamination dangers, and substrate unpredictability. By emphasising mushroom farming’s dual role in waste reduction and food security, this article underlines the significance of mushroom production practice as a sustainable solution to worldwide agricultural and environmental challenges with a view of cost-effective manner.