It is well-known that the utilization of mushrooms as therapeutic agents is not new. Over the past years, they have been used by local individuals as food, as well as medicines, throughout the world. Nowadays, mushrooms are excessively used in the medicine, pharmacy, food, and fermentation fields as well. Wild mushrooms are of particular interest, especially Trametes versicolor (commonly known as turkey mushrooms) due to their various uses in the food and pharmaceutical industries. They represent not only a huge storehouse of vitamins, minerals, and dietary fiber, but they are also an important source of bioactive polysaccharides. They are widely used in traditional oriental therapies. The fruiting bodies are used in the preparation of health tonics and tea. The present review is necessary to explore more about this mushroom-like classical taxonomy, morphology, nutritional value, bioactivity, various health attributes, mechanism of bioactive components against various diseases, and food applications. The influence of processing processes on the nutritional properties and bioactivity of the fungus is discussed. Potential bioactive components promising health attributes of Trametes versicolor are extensively described. Additionally, several in vivo and in vitro studies have demonstrated the beneficial effects of polysaccharopeptides (PSP) and Polysaccharide-K (PSK) on the aspects related to immune function and inflammation, also presenting an anticancerous effect. Moreover, PSP and PSK were successfully described to decrease several life-threatening diseases. The potential food applications of Trametes versicolor were detailed to signify the effective utilization of the mushroom in functional food formulation.