The medicinal mushroom Trametes versicolor has been well recognized for its activity in maintaining the general health of the population and in managing and treating human diseases in various cultures. Its use has been recently gaining acceptance and popularity in Western countries. The reported health benefits of T. versicolor led to a search for the identity of its bioactive ingredients. These efforts have resulted in the isolation of the polysaccharopeptide PSP from cultured mycelia of strain Cov-1, which expresses large amounts of PSP. The availability of highly purified PSP was followed by studies of its biological activities using tissue culture models and limited human clinical trials. In this review we summarize recent advances in the antitumorigenic and immunomodulatory effects of PSP, elimination of prostate cancer stem cells and control of the intestinal microbiome, and its interplay with host cells as a prebiotic. These findings may have implications for widening and repurposing the use of PSP.