This study investigates the sustainable production of Shiitake (Lentinula edodes) mushroom using agro-industrial wastes. The substrate of Shiitake (80% rice straw + 20% sugar cane bagasse) was moistened with 0 (freshwater as control), 50, and 100% concentrations of secondarily treated dairy plant and sugar mill wastewaters (DPW and SMW). After proper sterilization, the cultivation was carried out under controlled environmental conditions using the bag log method for 100 days. The results revealed that DPW and SMW moistening significantly (p < 0.05) increased the nutrient levels of the formulated substrate which later gave better mushroom yield. The highest Shiitake mycelial coverage (90.70 ± 1.47 and 88.65 ± 1.82%), yield (186.00 ± 3.10 and 176.09 ± 4.12 g/kg fresh substrate), biological efficiency (80.00 ± 0.58 and 75.73 ± 0.93%), total phenol (2.84 ± 0.03 and 2.69 ± 0.03 mg/g), ascorbic acid (0.34 ± 0.03 and 0.32 ± 0.02 mg/g), and β-carotene (2.48 ± 0.06 and 2.29 ± 0.02 μg/g) contents with the minimum time taken for spawn running (60 ± 1 days) was observed using a 50% concentration treatment of both DPW and SMW, respectively. Besides this, the kinetic studies using a first-order-based model showed acceptable accuracy in predicting the rate constant for substrate delignification and heavy metal uptake by Shiitake mushroom. These findings suggest a novel approach for sustainable mushroom cultivation using agro-industrial wastes. The concept can be used for the production of high-quality mushrooms for edible and medicinal purposes while contributing toward the United Nations’ Sustainable Development Goals (SDGs 12) on responsible consumption and production of superfoods.