Nowadays, the increase in the wastewater generated from the mushroom cultivation sector has become a serious environmental pollution concern. Therefore, the present study aimed to assess the efficiency of two water ferns (Azolla pinnata and A. filiculoides) in phytoremediation of mushroom farm wastewater (MFW) under stagnant and flowing tank reactor systems. For this, the laboratory scale experiments were conducted using five treatments, i.e., control (absolute borewell water), S50 (15 L borewell water + 15 L MFW: stagnant mode), S100 (30 L MFW: stagnant mode), F50 (15 L borewell water + 15 L MFW: flowing mode), F100 (30 L MFW: flowing mode), separately for both Azolla spp. After 15 days, A. pinnata and A. filiculoides significantly (p < 0.05) reduced the physicochemical parameters of MFW such as pH (18.87 and 18.56%), electrical conductivity (EC: 80.28 and 78.83%), total dissolved solids (TDS: 87.12 and 86.63%), biochemical oxygen demand (BOD: 90.63 and 89.90%), chemical oxygen demand (COD: 86.14 and 85.54%), and total Kjeldahl’s nitrogen (TKN: 84.22 and 82.44%), respectively, in F100 treatment. Similarly, the highest growth and biochemical parameters of Azolla spp. were also observed while using absolute MFW treatment in a flowing tank reactor system. Moreover, out of the two tested growth kinetic models, the logistic model showed better fitness to the experimental data and prediction of critical growth parameters compared to the modified Gompertz model. The findings of this study are novel and suggest sustainable upcycling of MFW using plant-based treatment techniques with the production of high-quality Azolla spp. biomass.