Grifola frondosa (GF), a high value medicinal mushroom in China and Japan, is popularly consumed as traditional medicines and health foods, especially for enhancing immune functions. In this study, our aim was to examine the immunomodulatory activities of GF and its bioactive compound ergosterol peroxide (EPO) in lipopolysaccharide (LPS)-induced human monocytic (THP-1) cells. At low concentrations, EPO but not other extracts showed a full protection against LPS-induced cell toxicity. EPO significantly blocked MyD88 and VCAM-1 expression, and cytokine (IL-1β, IL-6 and TNF-α) production in LPS-stimulated cells. It also effectively inhibited NF-κB activation, which was further confirmed with siRNA treatment. These results conclude that EPO may play an important role in the immunomodulatory activity of GF through inhibiting the production of pro-inflammatory mediators and activation of NF-κB signaling pathway.