The Mushroom Lake is an island located in The Moss Blanket. You can get here by crossing two different bridges (you'll need to use the jetpack in one of them as it is broken). This island houses a lake with a giant tree growing from the bottom of it. You can also find some big mushrooms around the island which give the island its name. There are also little mushrooms on the ground.
When visiting this zone, make sure to have some food with you. If a Hunter Slime eats a plort it will become a Feral Slime and will try to attack you. Prevention is better than cure!
The lake on the island.
The mushrooms that give the Mushroom Lake its name.