Psilocybe species, commonly known as "magic mushrooms", are a group of hallucinogenic fungi known for their psychoactive compounds such as psilocybin, psilocin, baeocystin, and norbaeocystin. These species have been the focus of scientific study due to their potential therapeutic applications, despite their classification as controlled substances in many jurisdictions. This review aims to provide a comprehensive overview of various Psilocybe mushrooms, highlighting their chemical compositions, genetic diversity, and therapeutic potential, particularly in the treatment of mental health conditions such as depression, anxiety, PTSD, addiction, and cluster headaches. By reviewing existing scientific literature, this review examines the pharmacological effects and therapeutic applications of Psilocybe mushrooms. The review includes novel contributions such as the identification of alternative pathways for psilocybin synthesis and taxonomic consolidations among Psilocybe species. It also explores the cultural context and traditional uses of these mushrooms. The findings indicate that Psilocybe mushrooms exhibit significant potential for therapeutic use in mental health treatment. The review also underscores the importance of ongoing research into the pharmacological properties of these mushrooms to better understand their effects and potential benefits. Despite their current legal status, Psilocybe mushrooms hold considerable promise for future therapeutic applications. There is a need for further investigation to fully explore their potential in medical and cultural contexts. This review sets a foundation for future research and drug development endeavors, advocating for a more nuanced understanding of these complex biological entities.