Alzheimer’s disease (AD) stands as a formidable neurodegenerative ailment and a prominent contributor to dementia. The scarcity of available therapies for AD accentuates the exigency for innovative treatment modalities. Psilocybin, a psychoactive alkaloid intrinsic to hallucinogenic mushrooms, has garnered attention within the neuropsychiatric realm due to its established safety and efficacy in treating depression. Nonetheless, its potential as a therapeutic avenue for AD remains largely uncharted. This comprehensive review endeavors to encapsulate the pharmacological effects of psilocybin while elucidating the existing evidence concerning its potential mechanisms contributing to a positive impact on AD. Specifically, the active metabolite of psilocybin, psilocin, elicits its effects through the modulation of the 5-hydroxytryptamine 2A receptor (5-HT2A receptor). This modulation causes heightened neural plasticity, diminished inflammation, and improvements in cognitive functions such as creativity, cognitive flexibility, and emotional facial recognition. Noteworthy is psilocybin’s promising role in mitigating anxiety and depression symptoms in AD patients. Acknowledging the attendant adverse reactions, we proffer strategies aimed at tempering or mitigating its hallucinogenic effects. Moreover, we broach the ethical and legal dimensions inherent in psilocybin’s exploration for AD treatment. By traversing these avenues, We propose therapeutic potential of psilocybin in the nuanced management of Alzheimer’s disease.