Medicinal mushrooms have become a compelling topic because the bioactive compounds they contain promise a plethora of therapeutic properties. Hericium erinaceus commonly known as “Houtou” or “Shishigashira” in China and "Yamabushitake” in Japan, has commonly been prescribed in traditional Chinese medicine (TCM), because its consumption has been shown to be beneficial to human health. The species is found throughout the northern hemisphere in Europe, Asia, and North America. Hericium erinaceus has been firmly established as an important medicinal mushroom and its numerous bioactive compounds have been developed into food supplements and alternative medicines. However, the correspondence of the active components that cause the observed effects is often not clear. The mushroom as well as the fermented mycelia have been reported to produce several classes of bioactive molecules, including polysaccharides, proteins, lectins, phenols, and terpenoids. Most interestingly, two classes of terpenoid compounds, hericenones and erinacines, from fruiting bodies and cultured mycelia, respectively, have been found to stimulate nerve growth factor (NGF) synthesis. In this review we examine the scientific literature to explore and highlight the scientific facts concerning medicinal properties of H. erinaceus. We provide up-to-date information on this mushroom, including its taxonomy and a summary of bioactive compounds that appear related to the therapeutic potential of H. erinaceus.