Mushrooms have long been revered not only as a staple food source but also for their potential medicinal properties. Their role as a natural repository of bioactive compounds positions them uniquely in the pharmaceutical domain, with particular relevance to cosmeceuticals and nutricosmetics. The global ethnobotanical and ethnopharmacological chronicles highlight the traditional application of mushrooms against many diseases, with many even finding their way into cosmetic formulations. This review aims to consolidate the existing knowledge regarding the efficaciousness of mushroom-derived bioactives in the realm of skin disorders and diseases. In addition, it sheds light on the instances where certain mushroom species have been implicated in causing dermatological reactions, underscoring the dual nature of these fungal entities. A comprehensive assessment was undertaken involving ethnobotanical databases and relevant scientific literature to identify mushrooms used traditionally for treating skin conditions. In addition, contemporary research elucidating the biological activities of these mushrooms, specifically their antioxidant, anti-inflammatory, antimicrobial, and wound-healing capabilities, was scrutinized. Special attention was accorded to instances of contact dermatitis induced by mushrooms, notably the shiitake fungus. Preliminary findings reinforce the therapeutic potential of certain mushrooms in managing skin ailments, attributed primarily to their antioxidant, anti-inflammatory, and antimicrobial properties. Conversely, some species, prominently shiitake, emerged as potent dermatitis triggers. Mushrooms undeniably harbor an array of compounds that can be instrumental in treating various skin conditions, thereby underscoring their potential in dermatological applications. However, an understanding of their dual nature, acting both as a remedy and a trigger for certain skin reactions, is essential for their judicious application in skin care. Further research is mandated to unravel the comprehensive pharmacological spectrum of these fungal treasures.