Polysaccharides and polyphenols are important secondary metabolites from the medicinal mushroom Inonotus obliquus. The objectives of this work were to investigate the ability of I. obliquus under submerged fermentation for the peanut shell biomass degradation and for the simultaneous enhancement of production and antioxidant activity of polysaccharides and polyphenols. Approximate 66.2%, 67.6%, and 70.2% of the initial cellulose, hemicellulose, and lignin in the peanut shells were degraded after 12 days of fermentation. The lignocellulose degradation showed a stimulatory effect on mycelial yield, production and antioxidant activity of extra- and intra-cellular polysaccharides and polyphenols. Highly active polyphenols such as epigallocatechin-3-gallate, epicatechin-3-gallate, phelligridin G, davallialactone, and inoscavin B were generated in larger amounts and phenolic acids such as gallic acid and ferulic acid were decreased dramatically by the lignocellulose degradation. [ABSTRACT FROM AUTHOR]