Bittercap mushrooms are used in the Cooking skill. Use a knife on them while having a bowl in your inventory to create sliced mushrooms. They are also used to brew Moonlight mead.
Gardeners will ask for eight bittercap mushrooms to watch your whiteberry bushes. Five mushrooms and a spade are required to activate Fairy Ring BJQ in the Ancient Cavern.
Notes:
You can't eat this mushroom. Brewing Moonlight mead requires four mushrooms.