A lobster mushroom isn't actually a true mushroom; it is a type of fungus which colonizes other mushrooms. When the fungus is left undisturbed, it will completely cover its host with a bright reddish to orange sheath which looks like a cooked lobster. As a result, people refer collectively to the host and the fungus as a “lobster mushroom.” Lobster mushrooms can be quite tasty, as a result of the unique combination of the host's flavor and that of the colonizing fungus, and they are eaten in many parts of the world.
The colonizing fungus is called Hypomyces lactifluorum, and it appears to be quite choosy. It tends to colonize either members of the Russula genus or milk-caps, in the Lactarius genus. Fortunately for humans, mushrooms in these genera are edible, and they are often enjoyed on their own. As the fungus encloses the host mushroom, it also develops small white dots which are likened to pimples, turning the lobster mushroom somewhat coarse to the touch. If the mushroom is not harvested, the fungus will contort the host into a bizarre shape which can make it almost unrecognizable.
The taste of a lobster mushroom is said to resemble that of an actual lobster, with a faintly marine flavor and a dense texture. In some Lactarius species, a lobster mushroom can actually be a bit spicy as well. Lobster mushrooms can be used in a wide range of dishes; they take well to baking, saute, and frying, and their unique flavor can complement numerous different foods. They are also superb on their own, fried in a little bit of butter.
These bright orange mushrooms are fairly easy to identify, but amateur mycologists should use some caution. Mushroom guides do not advise picking and eating a lobster mushroom unless you can identify the host, since the fungus could potentially colonize a poisonous mushroom. Identifying the host can be very challenging, and some mushroom hunters take their chances, since lobster mushrooms have been eaten for hundreds of years with no reported illnesses, but if you aren't experienced with mushroom identification, you should go out with someone who knows what he or she is doing.
If you don't feel up to harvesting lobster mushrooms on your own, some markets and grocers carry them during mushroom season. Look for firm specimens with no soft spots, slime, or obvious dark discoloration, and store the mushrooms in a paper bag in the fridge for up to a week before using. You can also purchase dried lobster mushrooms which can be rehydrated for cooking.