The blockage of the development of edible mushrooms will affect the production cycle and yield of fruiting bodies. Phenylalanine ammonia lyase (PAL, EC 4.3.1.5) is an enzyme that catalyses the deamination of phenylalanine to form trans-cinnamic acid. Previous results have shown that a decrease in pal1 gene transcription delays fruiting body development in Pleurotus ostreatus. Herein, we used wild type (WT) and RNA interference (RNAi) strains to study the molecular regulation of pal1 by RNA sequencing and agrobacterium-mediated genetic transformation. Our results showed that interference with the pal1 gene resulted in a decrease in the total PAL enzyme activity and the total phenol content, as well as an increase in the intracellular H2O2 content. RNA-Seq data demonstrated that the significantly enrichment KEGG terms were mainly related to the peroxisome pathway, MAPK signalling pathway-yeast and three other pathways, moreover, the catalase gene cat1 involved in multiple pathways that were enriched above. Exogenous H2O2 significantly enhanced the transcription of the cat1 gene and elevated total CAT enzyme activity. Moreover, the levels of cat1 gene transcription and the total CAT enzyme activity in the RNAi-pal1 strains were gradually closed to those in the WT strain through the removal of H2O2, which indicated that pal1 regulated the expression of cat1 by affecting the intracellular H2O2 content. Finally, the overexpression of the cat1 gene in P. ostreatus caused growth retardation, especially during the process of primordia formation. In conclusion, this study demonstrated that PAL1 affects cat1 gene expression through the signalling molecule H2O2 and regulates the development of P. ostreatus. Our findings have enhanced the understanding of the molecular developmental mechanism of edible mushrooms.