Magic Mushrooms are an ingredient found within Majora's Mask. They are located within various areas around Termina. These purple fungi can only be found after Link has completed the Woodfall Temple and received the Mask of Scents from the Deku Butler in the Deku Shrine.
When Link searches around Termina while wearing the Mask of Scents, his enhanced sense of smell makes it possible for him to sometimes come by a cloud of purple spores. When Link uses a Bottle on these spots, he receives a Magic Mushroom. If Link brings these to the Magic Hags' Potion Shop within the Southern Swamp, Kotake is surprised that he brought by such a thing and then makes him a Blue Potion. The first Potion is free, and any other Blue Potions that Link may want to purchase afterwards cost him, but at the same time, he may also bring in any other Magic Mushrooms. Kotake purchases them off Link for 20 Rupees a jar. These Mushrooms are typically just found within the Southern Swamp, but a few of them can be found within the Stock Pot Inn, while others may be found in the basic hidden grottoes found within the over world.