Mushroom has been relished as a source of food and medicine throughout the world. Pleurotus mushrooms are very highly perishable and therefore, it has been very necessary to develop a value added product. The fresh mushroom and mushroom powder was analyzed for their nutritional composition. Mushroom powder has been incorporated in the formulations of cake at 0, 5, 10, 15 and 20% by weight. The effect of various levels of mushroom powder on the physico-chemical properties and nutritional quality of cakes had been observed. The cakes containing mushroom powder in different concentrations were evaluated for their sensory attributes by a panel at 9 pointer hedonic scale. The results revealed that the colour and flavour of cake containing mushroom powder was significantly different from the control cake. Mushroom powder at 15% addition level significantly improved colour, flavour and texture of cake. The texture of the cakes with mushroom powder was equally acceptable to the control cake. The overall acceptability of the cakes with mushroom powder was equally acceptable to the control cake.