Developed by Gregor Anwhistle for use against the Firestarting side of VFD, this deadly fungus has a unique growth cycle in which it waxes and wanes. The fungus will undergo a brief dormant period when the mycelium, which branches out like bunches of thread, is nearly invisible. Then the fungus will begin its flowering stage, quickly and silently sprouting from the ground to full size. When it is time for the next dormant cycle, the fungus will wither away into only its mycelium form. 
The mushroom, like most mushrooms, has an umbrella-shaped pileus, and both the pileus and the stipe are dark gray, randomly speckled with black spots. Although it is referred to as a mushroom, it could actually be called a toadstool because of its poisons which render it inedible.
According to the following poem written by a VFD volunteer, if a single Medusoid Mycelium spore is eaten, or even inhaled, it is enough to kill a victim within an hour:
- A single spore has such grim power
- That you may die within the hour
The spores, if inhaled or eaten, will plant themselves inside the victim's throat and begin to grow thickly and rapidly inside. The blossoming mycelium will constrict the throat, choking its victim in the process.
The Medusoid Mycelium is commonly described as a "poison", likely for poetic reasons as it does not fit the description of a toxin but rather that of a parasitoid. Between its ability to grow on a wide variety of surfaces where it would be impossible for other plants or fungi to grow (e.g. the glass of the diving helmet, the human throat) and its preference for tight enclosed spaces (such as the inside of a human body) the fungus quickly spreads through the respiratory tract and chokes the life out of its victims. Without its strange abilities, the mycelium might not be dangerous at all, assuming it has no other poisonous properties.
- Is dilution simple? But of course!
- Just one small dose of root of horse.
Consuming this antidote will kill the fungus, leaving no traces of it behind inside the victim's body. Other spices and substances with the same bitter, strong taste or intensity are also able to stop such an infection. Violet and Klaus discovered wasabi as a cure for the poison when their little sister Sunny requested it, and they gave her the spicy condiment, which effectively killed the fungus and strengthened her breathing. Sunny Baudelaire also mentioned Eutrema as a substitute. (In the Netflix Adaptation, wormwood is also mentioned.)
The organization processed horseradish in the Opportune Odors Horseradish Factory on Lousy Lane. However, Kit Snicket did not believe that they would be able to produce enough horseradish if an outbreak were to take place.
In an effort to find another cure, Bertrand and Beatrice Baudelaire created a hybrid tree, cross breeding horseradish with apple trees. This hybrid tree grew on The Island, and its fruit can dilute the poison with a single bite.
The only known drawback to the horseradish/apple hybrid is that it is somehow dangerous to unborn children, making it unsafe for pregnant women to consume.
Gregor Anwhistle cultivated the fungus in order to use as a weapon against the firestarting side of VFD. It was named after Medusa, a figure in Greek Mythology. Kit Snicket feared that Gregor's experiments with the fungus were too dangerous and volatile.
After the burning of Anwhistle Aquatics- caused by volunteers concerned that his weapon would be too dangerous- the medusoid was safely quarantined in the Gorgonian Grotto, but several years later, a sample was taken out in the diving helmet of Sunny Baudelaire, almost killing her with the poison before wasabi could be applied to her.
The mushroom sample remained quarantined in the helmet, though Fiona gave it to Count Olaf in order to gain his trust. Olaf hid the helmet on the sunbathing roof of the Hotel Denouement, and threatened to release it onto the guests. He was only stopped by the Baudelaires setting the hotel on fire and stalling him. Unfortunately, he still had the helmet with him when the group fled into the sea.
Olaf found the helmet on the coastal shelf of The Island and hid it inside his dress as he disguised himself as a pregnant Kit Snicket. He planned to use it to threaten the islanders into making him King, but Ishmael shot him with a harpoon gun, breaking the helmet and releasing the fungus.
The fungus infected everyone on the island, save Ishmael, who had been eating the apples regularly and thus immunized himself. The Baudelaire children and Olaf were able to dilute the poison with the apples, but the islanders refused to take them, after being made to drink fermented cordial by Ishmael and thus too drugged to disagree with him. However, the Incredibly Deadly Viper went after their outrigger with an apple cure, and Friday Caliban knew the snake to be trustworthy, so the islanders may have survived. (It should also be noted that it seems the Medusoid Mycelium did not spread to the rest of the world and become the epidemic predicted, as there is no mention of it in any of Lemony Snicket's narration nor the letters of Beatrice Baudelaire II, which could imply that the fungus was indeed diluted.)
The only known victim of the Medusoid Mycelium was Kit Snicket, who was pregnant upon washing on the island and did not eat the cure due to the harm it could cause her unborn child. She died after giving birth.
Netflix Series Divergent Canon
The Medusoid seems to be a neon green color instead of the gray-and-black as described in the books. It is also claimed that the sugar bowl's sugar acted as an immunization to the Mycelium- which could not be the case in the books' canon, as the Sugar Bowl was known to be important before the schism worsened, and Gregor made the Mycelium in the middle of the schism, while Fiona was still a young child.
- As Snicket states in his narration, VFD was most likely an ancient Greek idea. (Given his description of the Cimmerians and as he mentions Medusa the Gorgon as being the namesake of the Gorgonian Grotto.) Thus, Perseus sealing Medusa into the cave could parallel the mycelium being sealed into the Gorgonian Grotto.
- In The Bad Beginning, Justice Strauss says that she had a case concerning a poisonous plant. This may be a reference to Medusoid Mycelium, however as mushrooms are fungus, not plants, this is not guaranteed.
- The plants said to cure the mycelium (horseradish, wasabi, eutrema) are all members of the Brassicaceae family of plants and produce the pungent compound Allyl isothiocyanate. It's unknown if the chemical in isolation would work a cure for the mycelium.