This study attempts to analyze the current scenario of the mushroom enterprise in Nepal. The study provides insights on its future prospects as a major agro-industry. It also explores issues and challenges facing the Nepalese's mushroom industry by using a critical and SWOT analysis. Though, Nepal has all the requisites of low-cost labor, favorable climatic conditions, plentiful cheap supply of raw substrates, spawns and other inputs to become a leading mushroom producer. The industry is still in the state of infancy. The main challenges include inadequate scientific research on mushrooms; lack of adoption of improved technology, insufficient investment; unstable farm-gate prices and profit margins, poor supply and the increasing price of raw material e.g., rice straw; the poor quality of mushroom spawn, and the threat of diseases and pests attack. Several strategies are also presented here to improve the mushroom enterprise in Nepal.