Expanded polystyrene (EPS) is a type of plastic packaging widely used by the packaging industry for over 50 years. However, EPS has posed a threat to our environment, including depletion of natural resources, greenhouse gas emissions, and difficulty in degrading in the natural environment. Since 2016, many countries have passed legislation prohibiting the use of EPS worldwide. Therefore, academia and the packaging industries actively seek alternatives. Mycelium-based materials (MBMs) have gradually gained attraction due to their sustainability and foam-like characteristics. However, concerns about the physical and mechanical properties of MBMs and the availability and cost of substrates have made both the packaging industry and customers hesitant to adopt them. This study aimed to address these concerns by upcycling waste paper and blending it with hemp hurds to reduce costs and improve certain properties. The compaction method was also explored in the study to enhance the MBMs’ properties. In the study, lower-value waste paper, a more readily available and cost-effective resource, was blended with hemp hurds to create MBMs. The physical and mechanical characteristics of the resulting samples were assessed and compared to those made of pure hemp substrates. The results showed that samples based on hybrid substrates had higher density, appeared to have better water resistance at 60% but worse at 80% RH than pure hemp hurds-based samples, but had higher values of compressive strength and Young’s modulus than those made of pure hemp hurds. In addition, the compaction method before the cultivation was used for seven protocols, and its effects on the properties of final products were assessed, with compacted and uncompacted samples for each protocol. Dry density, water absorption, and compressive properties were compared between samples with compaction and those without compaction. Compacted samples showed a 9.57-34.29% increase in dry density, a 28.57-129.63% increase in compressive strength at 10% strain, and a 37.32-139.42% increase at 35% strain, and a 27.66-142.35% increase in compressive Young’s modulus. The impact of compaction on the water absorption of samples varied depending on the samples’ recipes in this study.