Mycelium-bound composite substances are a novel class of sustainable and economical bio composites that were recently developed as an alternative to typical synthetic materials in packaging, fashion, and architecture. Extensive research has been carried out in recent years to study the methods of manufacture and processing, as well as prospective uses for mycelium-bound composite materials. However, the usage of this bio-composite in the construction industry is confined to small-scale prototypes and display exhibits. The main challenges that need to be address when employed as non-structural or semi-structural components are the water absorption, mechanical characteristics and the standard techniques for manufacture and testing of mycelium-bound composite materials as building insulation or blocks. Hence this paper describes the usage of novel Pleurotus ostreatus-mycelium fungal blocks to enhance the indoor thermal preformance of the building. To develop distinct mixing protocols with various substrate materials such as straws, coir pith, saw wood and the combination of the all the substrate were used in the present work. The parameters such as density, thermal resistivity, compressive strength and fire resistant were determined and it was found that the composition of the substrate is highly variable in the tested considered in the work. Straw and coir pith substrate showed a high strength and the thermal resistivity in comparison with the other substrates. Also, the findings show that the mycelium fungal based blocks have a lot of potential for use as an alternative material for insulation for building and infrastructure development, especially as a light-weight material for engineering applications.