Utilization of biomass and reuse of industrial by-products and their sustainable and resource-efficient development into products that are inherently non-toxic is important to reduce the use of hazardous substances in the design, manufacture and application of biomaterials. The hypothesis in this study is that spent mushroom substrate (SMS), a by-product from mushroom production, has already undergone a biological pretreatment and thus, can be used directly as a starting material for fibrillation into value-added and functional biomaterial, without the use of toxic substances. The study show that SMS can be effectively fibrillated at a very high concentration of 6.5 wt % into fibrils using an energy demand of only 1.7 kWh kg−1, compared to commercial and chemically pretreated wood pulp at 8 kWh kg−1, under same processing conditions. SMS is a promising resource for fibrillation with natural antioxidant activity and network formation ability, which are of interest to explore further in applications such as packaging. The study shows that biological pretreatment can offer lower environmental impact related to toxic substances emitted to the environment and thus contribute to reduced impacts on categories such as water organisms, human health, terrestrial organisms, and terrestrial plants compared to chemical pretreatments.