The purpose of this study was to manufacture functional Labneh supplemented with mushroom (Agaricus bisporus) powder as a source of antioxidant compounds to increase its health benefits. Labneh was made by adding mushroom powder at zero, 0.5, 1, 1.5, 2, 2.5 and 3%.  Labneh treatments were stored at 6±1ºC for 28 days and analysed on days fresh, 7, 14, 21 and 28 of the storage period to evaluate its chemical, microbiological and sensory properties. The obtained results revealed that supplementing labneh treatments with mushroom powder caused a significant increase of total bacteria counts, streptococci, lactobacilli, titratable acidity, total solids, total protein, ash, carbohydrates, total phenolic contents and antioxidant activity, while decreased significantly pH values and preventing the growth of molds and yeasts. Addition of mushroom powder up to 1.5% did not significantly affect the organoleptic properties of labneh, while increasing the rate of supplementation above 1.5% caused a significant decrease of organoleptic scores. During storage period, there were no significant differences in total solids, fat, total protein, and ash of all labneh treatments, while pH, carbohydrates, total phenolic contents, and antioxidant activity decreased, and titratable acidity increased. Streptococci and lactobacilli counts of labneh treatments increased up to the seventh day of storage period, while total bacterial counts increased up to the fourteenth day of storage, then all counts declined as the storage period proceeded. According to the panelists, treatment T3 supplemented with 1.5% mushroom powder was the most acceptable.