I have two large foundation beds that receive full afternoon sun. I
had been battling wire grass and various other invasives in both beds
for several years. Last year, out of frustration with my weed
problem, I opted to remove all of the old shrubs and start fresh.

I tilled and prepared the beds in July, then covered both beds with
landscape cloth and 4" of mulch that I obtained for free from my
county recycling center. Satisfied that the weed problem was under
control, I planted a few evergreen shrubs in the fall and allowed
everything to sit until spring.

This weekend, I began filling in the beds with perennials. When
pulling back the mulch layer to cut through the landscape fabric and
dig a hole, I was surprised by what is happening to the mulch. It
appeared relatively dry on the top layer, but it was wet and matted
together underneath, and was connected with a web of white spores. I
recognized it as some type of fungus. While it is not consistent
across 100% of both beds, I found it at 28 locations where I planted
today. In two of those spots, I found clusters of cauliflower shaped
mushrooms growing under the mulch layer, but on top of the landscape
fabric. These beds always had excellent drainage, so with the wet
conditions this spring, I'm getting concerned. My mulch didn't seem
compacted, so I thought it was getting adequate air.

Has anyone encountered this kind of white fungus growing under their
mulch? I'm curious to know if the landscape fabric is the culprit.
I didn't think that water would have any problem draining through the
mulch and the fabric layers when I put it in. Can this much fungus
harm my new plants? Would it be a good idea to turn over/aerate the
mulch layer? Is there anything I can apply to the mulch that will
treat the fungus? And finally, is using the free mulch from the
county dump part of the problem? I've never had this trouble with
store-bought bagged mulch, even when used on landscape fabric.

Any advice you may have is appreciated!

It could just as easily happen on bagged mulch.

It will not hurt plants.

The landscape fabric may, as barngod says, have helped encourage it by holding moisture, but it probably would have happened anyway.

You can turn the mulch or not - the fungus will probably come back.

You can spray something on the fungus, but there's no reason to do that. What you have is normal, harmless to plants and, ultimately, good for the soil.

Consider stripping out that landscape fabric, though. It's not doing anybody much good. If you tilled in wiregrass without picking out the pieces of the roots, it may well be back and the fabric won't stop it.