This research investigates the application of fungi to the existing linear agricultural and forestry economies to create more circular economic models, reduce CO2 emis-sions, and produce building materials aligning with ac-tion plans of European governments, towards climate neutrality by 2050. In this context, biomaterials in the built environment are considered a critical way forward. The research studies mycelium-based materials for panel boards in buildings. Mycelial structure was proven to be an effective material binder, but there are potential im-provements to product quality and stability in produc-tion. After identifying specific fungi for use as material binder, laboratory tests assessed salient mechanical prop-erties of the mycelium-based composite materials on pelletised vs. chopped/chipped substrate materials. The results show that pelletised substrate materials produce composite materials with isotropic characteristics that are more resistant to compressive loads than composite mate-rials made from chopped substrates. This gives promise that pelletised substrates can improve strength, con-sistency, and reliability of mycelium products while of-fering an industrial solution to biomass waste manage-ment with the production of standardised pellets as an ingredient of mycelium composite materials. The produc-tion process thus has the potential to create a circular economic model for agriculture, forestry, and the built environment, while off-setting biomass incineration.