Mushrooms, long known for their nutritional, medicinal, and ecological roles, are now evolving as sustainable bio-resources in material science. The filamentous network of fungal hyphae has emerged as a sustainable alternative to petrochemical-derived textiles and packaging materials. In the textile sector, mycelium-based matrices have shown significant promise as substitutes for nonwoven fabrics and leather analogues. Similarly, in the packaging industry, mycelium-derived foams and films have been developed as biodegradable replacements for synthetic polymers like polystyrene and polyethylene. Mushroom mycelium represents a promising edge toward sustainability and is likely to allay the habit of using nonrenewable polymers. This chapter explores the architectural properties of mushroom mycelium as a potential biomaterial for packaging and textiles, details of their production process using biodegradable waste materials, applications, and their industrial adaptations available in the market. The chapter examines challenges and hurdles in the extended use of this biomaterial, such as durability, waterproofing, production scalability, and cost efficiency, and suggests solutions to these obstacles by making advancements in fungal biotechnology, substrate engineering, and hybrid composites. We have also discussed the advanced applications of mushroom mycelium in space exploration, construction, and furniture, boosting the circular economy and carbon neutrality. Thus, by using engineering methodologies and the biological basis of mushroom growth, mycelium-based textiles and packaging can transform into ecologically aligned and industrially viable alternatives.