It is generally reported that fungi likePleurotus spp. can fix nitrogen (N2). The way they do it is still not clear. The present study hypothesized that only associations of fungi and diazotrophs can fix N2. This was testedin vitro.Pleurotus ostreatus was inoculated with a bradyrhizobial strain nodulating soybean andP. ostreatus with no inoculation was maintained as a control. At maximum mycelial colonization by the bradyrhizobial strain and biofilm formation, the cultures were subjected to acetylene reduction assay (ARA). Another set of the cultures was evaluated for growth and nitrogen accumulation. Nitrogenase activity was present in the biofilm, but not when the fungus or the bradyrhizobial strain was alone. A significant reduction in mycelial dry weight and a significant increase in nitrogen concentration were observed in the inoculated cultures compared to the controls. The mycelial weight reduction could be attributed to C transfer from the fungus to the bradyrhizobial strain, because of high C cost of biological N2 fixation. This needs further investigations using14C isotopic tracers. It is clear from the present study that mushrooms alone cannot fix atmospheric N2. But when they are in association with diazotrophs, nitrogenase activity is detected because of the diazotrophic N2 fixation. It is not the fungus that fixes N2 as reported earlier. Effective N2 fixing systems, such as the present one, may be used to increase protein content of mushrooms. Our study has implications for future identification of as yet unidentified N2 systems occurring in the environment.