From the Super Mario Wiki
The Lost Mushroom is a mysterious, golden statuette of unknown origin that resembles a joyous Mushroom person. For years, most considered it to be legendary, for it has the power to grant the wishes of whoever is in possession of it. A nearly-forgotten ancient treasure, the Lost Mushroom was hidden deep within the Temple of Koopa in Jungle Land for several generations.
The Lost Mushroom appears to have been modeled off of the famous Laughing Buddha, or Budai, the image of which has very often been replicated in Buddhist shrines, and statuettes.
The Lost Mushroom was only ever seen in The Super Mario Bros. Super Show! episode "Raiders of the Lost Mushroom". According to Kolonel von Koop, the Lost Mushroom was left to him by his Great-Great Grandkoop, although how he got a hold of the Lost Mushroom in the first place and what exactly he used it for remains a mystery. Unbeknownst to Kolonel von Koop, his Great-Great Grandkoop built the Temple of Koopa to hide the Lost Mushroom in.
After being led to the Temple of Koopa by Indiana Joe, Mario, Luigi, Princess Toadstool and Toad braved the dangers within to reach the Lost Mushroom, although they trapped themselves in the Lost Mushroom's chamber in order to escape from a Fryguy in the process. Mario inadvertently wished for a trap door out of the chamber, and the Lost Mushroom granted his wish by creating one, which led to the entrance of the Temple of Koopa. At the entrance, Kolonel von Koop seized the Lost Mushroom from Mario, and locked his group up in a tree hut with a Shy Guy Lion.
Kolonel von Koop then used the Lost Mushroom to wish for a castle made of solid gold, which appeared right before his eyes. Before he and the Koopa Pack could do anything else, Mario recovered the Lost Mushroom from Kolonel von Koop with his plumber's snake.
After defeating Kolonel von Koop and the Koopa Pack, Mario and his friends returned to Indiana Joe's home, where Mario used the Lost Mushroom to wish for the hut to fill up with tons of pasta. Surrounded by noodles, Mario commented that he and the Lost Mushroom were going to get along just fine.