Although the application of Auricularia auricula-judae (AAJ) for health purposes has a long tradition in Asia, there is a lack of research on the functional nutrition of AAJ; the current research focused on polysaccharides has been too unitary compared to other mushrooms in recent years. Identification, extraction, and large-scale production of biologically active substances have emerged as critical determinants that determine AAJ becoming a functional food. AAJ is being treated in a restrained manner, despite having significant potential as a drug or a source of pure bioactive substances. Functional ingredients of mushrooms and AAJ have emerged as a new impetus for researchers interested in developing functional foods. This review presents an overview of current studies relevant to nutrition and the application of AAJ. The physiological conditions of AAJ and the corresponding functional ingredients beneficial to human health are reviewed to better understand the function and mechanisms of different nutrient contents. Relevant methods for evaluating the efficiency of extraction are also summarized. Finally, current limitations and the future scope for functional ingredients of AAJ are identified and discussed.