Mushroom bioactive peptides (MBPs) are bioactive peptides extracted directly or indirectly from edible mushrooms. MBPs are known to have antioxidant, anti-aging, antibacterial, anti-inflammatory and anti-hypertensive properties, and facilitate memory and cognitive improvement, antitumour and anti-diabetes activities, and cholesterol reduction. MBPs exert antioxidant and anti-inflammatory effects by regulating the MAPK, Keap1-Nrf2-ARE, NF-& kappa;B and TNF pathways. In addition, MBPs exert antibacterial, anti-tumour and anti-inflammatory effects by stimulating the proliferation of macrophages. The bioactivities of MBPs are closely related to their molecular weights, charge, amino acid compositions and amino acid sequences. Compared with animal-derived peptides, MBPs are ideal raw materials for healthy and functional products with the advantages of their abundance of resources, safety, low price, and easy-to-achieve large-scale production of valuable nutrients for health maintenance and disease prevention. In this review, the preparation, bioactivities, mechanisms and structure-activity relationships of MBPs were described. The main challenges and prospects of their application in functional products were also discussed. This review aimed to provide a comprehensive perspective of MBPs.