Pleurotus ostreatus is one of the widely cultivated edible mushrooms. Water-soluble proteoglycan fractions from P. ostreatus mycelia were purified by alcohol-precipitation, ion exchange and followed by gel permeation (Sephadex G-100) chromatography. Three neutral fractions were found, which had polysaccharide to protein ratios 14.2, 26.4 and 18.3, respectively. These fractions were tested for in vitro and in vivo immunomodulatory and anticancer effects on Sarcoma-180-bearing mouse model. In vivo injection of proteoglycans to Sarcoma-180-bearing mice decreased the number of tumor cells and cell cycle analysis showed that most of the cells were found to be arrested in pre-G(0)/G(1) phase of cell cycle. All of the three proteoglycans elevated mouse natural killer (NK) cell cytotoxicity and stimulated macrophages to produce nitric oxide. The Fourier transform infra red (FTIR) spectra suggested the presence of beta-glycosidic bond in all the fractions. Fraction I strongly interacted with glucose/mannose-specific lectin Concanavalin A (ConA), indicating the presence of large number of terminal sugar with glucose/mannose. Thus, the three neutral proteoglycans derived from the mushroom (P. ostreatus) mycelia could be used as immunomodulators and anti cancer agents.