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Cellulose fiber rejects from industrial-scale recycling of waste papers were dried and de-ashed using a combined cyclone-drying and sieving process. The upgraded fiber reject was used as a component of substrates for the cultivation of Pleurotus ostreatus and Pleurotus eryngii mushrooms. Acetic acid (AA) and acid whey (AW) were used to adjust the pH of fiber reject-based substrates. Spent substrate (SMS) was used for the production of activated biochar using H₃PO₄ and KOH as activating agents and pyrolysis temperatures of 500, 600, and 700 °C. The effectiveness of the biochars in removing pollutants from water was determined using acetaminophen and amoxicillin. By using a feeding rate of 250 kg/h and a drying air temperature of 70 °C, the moisture content of the raw fiber rejects (57.8 wt %) was reduced to 5.4 wt %, and the ash content (39.2 wt %) was reduced to 21.5 wt %. Substrates with 60 and 80 wt % de-ashed cellulose fiber were colonized faster than a birch wood-based control substrate. The adjustment of the pH of these two substrates to approximately 6.5 by using AA led to longer colonization times but biological efficiencies (BEs) that were higher or comparable to that of the control substrate. The contents of ash, crude fiber, crude fat, and crude protein of fruit bodies grown on fiber reject-based substrates were comparable to that of those grown on control substrates, and the contents of toxic heavy metals, that is, As, Pb, Cd, and Hg, were well below the up-limit values for food products set in EC regulations. Activated biochar produced from fiber reject-based SMS at a temperature of 700 °C resulted in a surface area (BET) of 396 m²/g (H₃PO₄-activated biochar) and 199 m²/g (KOH-activated biochar). For both activated biochars, the kinetics of adsorption of acetaminophen and amoxicillin were better described using the general order model. The isotherms of adsorption were better described by the Freundlich model (H₃PO₄-activated biochar) and the Langmuir model (KOH-activated biochar).