Nepal is predominantly agricultural country with almost 80 percent of population depending upon agriculture for their livelihood. The agriculture is traditional; subsistence based producing mostly food crop and very less amount of high value cash crop. The farmers are mostly of weak economic background, with small land holdings and lack of knowledge about technology. Though agricultural development for poverty alleviation and economic growth has been one of the focal points of national policies for a long time, there is still lack of implementation, adequate research and study done in this field.

Climatic condition of the country varies from tropical in Terai region to alpine in Himalayan regions. 35 types of forest have been identified in Nepal. Biodiversity of Nepal is also remarkable with wide variety of species of flora and fauna. This gives opportunity for production of many high value products including mushroom. Due to this rich diversity, the potential for mushroom production for both food and medicinal purpose is immense. However resources endowed by the diversity have yet to be captured and utilized. This paper deals with the study of current status of mushroom farming, its potentials and challenges.