Mushrooms have been used as traditional medicine from last few decades. Mushrooms as higher Basidiomycetes contain secondary metabolites in fruit bodies, cultured mycelium, and cultured broth. Medicinal mushrooms possess medicinal properties such as anti-tumor, immunomodulating, antioxidant, cardiovascular, anti-hypercholesterolemic, anti-viral, anti-bacterial, anti-parasitic, antifungal, detoxification, hepatoprotective, and anti-diabetic effects. Phase-I, II, and III clinical trials were studied on various biologically active compounds isolated from medicinal mushrooms and are used adequately to treat various diseases including cancer. The present review focuses on various edible, medicinal and poisonous species of mushrooms belong to genera; Auricularia, Cantherallus, Ganoderma, Pleurotus, Lentinus, Trametes (Coriolus), Tremella and Amanita along with their chemical composition, biologically active compounds isolated and their pharmacological potential.