Inonotus obliquus (Fr.) Pilat is a white rot fungus belonging to the family Hymenochaetaceae in the Basidiomycota. In nature, this fungus rarely forms a fruiting body but usually an irregular shape of sclerotial conk called 'Chaga'. Characteristically, I. obliquus produces massive melanins released to the surface of Chaga. As early as in the sixteenth century, Chaga was used as an effective folk medicine in Russia and Northern Europe to treat several human malicious tumors and other diseases in the absence of any unacceptable toxic side effects. Chemical investigations show that I. obliquus produces a diverse range of secondary metabolites including phenolic compounds, melanins, and lanostane-type triterpenoids. Among these are the active components for antioxidant, antitumoral, and antiviral activities and for improving human immunity against infection of pathogenic microbes. Geographically, however, this fungus is restricted to very cold habitats and grows very slowly, suggesting that Chaga is not a reliable source of these bioactive compounds. Attempts for culturing this fungus axenically all resulted in a reduced production of bioactive metabolites. This review examines the current progress in the discovery of chemical diversity of Chaga and their biological activities and the strategies to modulate the expression of desired pathways to diversify and up-regulate the production of bioactive metabolites by the fungus grown in submerged cultures for possible drug discovery.