Replacing conventional fine aggregates with spent mushroom substrate (SMS) is aimed at developing a sustainable lightweight masonry mortar. It is also an alternative solution for the current improper mushroom waste disposals. Density, workability, compressive strength, specific strength, flexural strength, ultrasonic pulse velocity, water absorption, sorptivity, and equivalent CO2 emission in relation to sand reduction in mortars containing 2.5-15.0% (by volume) SMS passing through a 4.75-mm sieve were investigated. As the percentages of replacement increased from 2.5 to 15.0%, the density of the SMS mortar reduced up to 34.8%, with corresponding compressive strengths of 24.96 to 3.37 MPa. Mixes with up to 12.5% SMS met the minimum compressive and flexural strengths as stated in the ASTM C129 standard. In addition, the equivalent CO2 emission of the mixes reduced 15.09% as the SMS content increased while cost-effectiveness increases up to 98.15% until 7.5% SMS replacement. In conclusion, the use of SMS as fine aggregates up to 12.5% is a viable mix design strategy for producing sustainable lightweight mortar with a lower carbon emission.