Using agricultural wastes as substrates of mushroom cultivation can minimize environmental pollution and provide a high-quality substrate that might be used for animal feeding after cultivation, which is beneficial for ruminants. Three experiments were conducted to evaluate the nutritional value of cultivated mushroom residue in lamb diets. Seven inoculation times (0, 5, 10, 15, 20, 25, and 30 days of cultivation) of mushroom substrates by Pleurotus ostreatus were evaluated in a completely randomized design with five replications to characterize the mushroom crop substrate. Within 30 days of cultivation, the mushroom crop residue (MCR) was sun-dried and tested on the lambs’ diet. The first experiment involved 40 uncastrated crossbred lambs (Santa Ines × Dorper), with a mean body weight (BW) of 27.8 ± 2.37 kg (mean ± SD), which were randomly assigned to five groups of six lambs each. They received five levels of MCR replacing Tifton-85 hay: 0, 25, 50, 75, and 100 % on dry matter basis (DM) to evaluate performance, carcass traits, ingestive behavior, and blood parameters. In the second experiment, 25 lambs (40.0 ± 3.0 kg BW) were distributed in metabolic cages in a completely randomized design with the same five treatments of experiment 1 (MRC replacing Tifton-85 hay) and six replications to determine nutrient digestibility and nitrogen balance. To evaluate ruminal parameters, a third experiment was conducted with five Santa Ines × Dorper crossbreed rumen-cannulated sheep weighing 42.0 ± 4.0 kg, which were distributed in a 5 × 5 Latin square. After 30 days of cultivation of the fungus Pleurotus ostreatus, there was a reduction in the MCR contents of DM, ether extract (EE), and non-fiber carbohydrates (NFC). In contrast, ash, crude protein (CP), neutral detergent fiber expressed exclusive of residual ash (aNDF), acid detergent fiber (ADF), and in vitro DM digestibility coefficient (IVDMD) increased (P ≤ 0.05) over the cultivation time. The intake of DM, CP, aNDF and NFC quadratically increased (P ≤ 0.05) with the addition of dehydrated MCR in the lambs’ diet. The effective consumed CP composition and the digestibility coefficient of DM, CP, and aNDF decreased linearly (P ≤ 0.05) due dehydrated MCR addition in the lambs’ diet. The time spent eating and idling, and the rumination efficiency rates (g DM and NDF/h) increased linearly (P ≤ 0.05) with the replacement of Tifton-85 hay by the dehydrated MCR. The time spent on rumination and chewing, the nº of boli chewed, and the DM intake efficiency rate reduced linearly (P ≤ 0.05). There was a linear (P ≤ 0.05) increase in N-intake, N-fecal, and N-retention and linear reduction (P ≤ 0.05) in N-urinary excretion and rumen protozoa count due to the inclusion of MCR in the lambs’ diet. Growth performance, carcass traits, rumen pH, ammonia nitrogen (NH3-N), and blood parameters were not changed by the replacement of hay with MCR. Dehydrated mushroom crop residue inclusion at 75 % of total DM replacing Tifton-85 hay in lambs’ diet is recommended because it improves rumination efficiency, and N-retention without any negative effect on rumen pH, blood metabolites, and carcass traits.