Medicinal higher fungi such as Cordyceps sinensis and Ganoderma lucidum have been used as an alternative medicine remedy to promote health and longevity for people in China and other regions of the world since ancient times. Nowadays there is an increasing public interest in the secondary metabolites of those higher fungi for discovering new drugs or lead compounds. Current research in drug discovery from medicinal higher fungi involves a multifaceted approach combining mycological, biochemical, pharmacological, metabolic, biosynthetic and molecular techniques. In recent years, many new secondary metabolites from higher fungi have been isolated and are more likely to provide lead compounds for new drug discovery, which may include chemopreventive agents possessing the bioactivity of immunomodulatory, anticancer, etc. However, numerous challenges of secondary metabolites from higher fungi are encountered including bioseparation, identification, biosynthetic metabolism, and screening model issues, etc. Commercial production of secondary metabolites from medicinal mushrooms is still limited mainly due to less information about secondary metabolism and its regulation. Strategies for enhancing secondary metabolite production by medicinal mushroom fermentation include two-stage cultivation combining liquid fermentation and static culture, two-stage dissolved oxygen control, etc. Purification of bioactive secondary metabolites, such as ganoderic acids from G. lucidum, is also very important to pharmacological study and future pharmaceutical application. This review outlines typical examples of the discovery, bioactivity, and bioproduction of secondary metabolites of higher fungi origin.