Poly-beta-hydroxybutyrate (PHB) belonging to the polyhydroxyalkanoates family is a natural polyester used as a biodegradable plastic for various commercial applications. In this study, soil samples from the vegetable oil processing industry were used to screen for PHB-producing bacteria using Sudan black B staining. Among the isolated bacteria, PHB positive PSR-2 isolate was chosen as a potent PHB producer. The phylogenetic tree revealed that the PSR-2 isolate has a high 16S rRNA gene sequence similarity of 99.9\% with Bacillus tequilensis. The PHB content of 2.8 +/- 0.09 g/L was produced by PSR-2 isolate in 48 h in a nutrient broth medium containing 1\% glucose compared to the PHB production of 1.6 +/- 0.08\% by the reference strain, Bacillus circulans. Taguchi method was used to optimize PHB production using the alkali-pretreated spent mushroom substrate of sugarcane bagasse (SMS-SB) as an additional carbon substrate along with other energy sources. The optimized factors in the contribution of PHB production from the highest- to the lowest-ranking are as follows: alkali-pretreated SMS-SB, glucose, glycerol, peptone, ammonium chloride, and potassium dihydrogen phosphate at 30 oC, pH 7.0, which resulted in the production of 12.4 +/- 0.95 g/L PHB was higher than the predicted value of 11.59 g/L. The synthesized PHB was characterized using Ultraviolet-visible spectrophotometry, Fourier transform infrared spectrometry, differential scanning calorimetry, thermogravimetric analysis, nuclear magnetic resonance spectroscopy, and gas chromatography-mass spectrometry. The results revealed the presence of hydroxyl (-OH), methyl (-CH3), methine (=CH-), methylene (-CH2-) and ester carbonyl (>C=O) groups, which confirmed the PHB structure. Thus, alkali-pretreated SMS-SB plays a significant role as an energy substrate for the production of PHB. This gives the knowledge to utilize cost-effective lignocellulosic agro-waste materials as a feedstock for the sustainable production of biodegradable PHB for many biomedical applications. Graphic