With the rapid growth of the global economy and the global population, the production of solid waste has increased remarkably. Mushrooms are gaining popularity among researchers for their ability to turn waste into nutrients. However, a large number of by‐products are produced during the industrial processing of mushrooms. Traditional waste management, focusing on the utilization and disposal of mushroom by‐products, has attracted the attention of researchers. Meanwhile, the circular economy has become a multidisciplinary research field, and the valorization of mushroom by‐products is a very important part of circular economy research. Various mushroom by‐products of mushroom are reviewed in this paper. By‐products are used in food as raw materials or functional components, in livestock and poultry feed after grinding/fermentation, and as electrochemical materials and papermaking materials. The by‐products can also be used to produce ethanol and other biological sources of energy, as absorbing substances in sewage treatment, and as fertilizer in soil amendment. Mushroom processing by‐products can be applied in various fields. To improve production efficiency, new extraction technology (including supercritical fluid technology and microwave extraction technology) can be adopted to increase the bioactive substance content in the by‐products. Choosing appropriate processing temperature, time, and other processing conditions can also enhance product quality. Finally, more research is needed on the cost‐effective utilization of the by‐products and the feasibility of industrialization. © 2022 Society of Chemical Industry.