Abstract: With the rapid development of the traditional Chinese medicine industry, the generation of Chinese medicine residues has continuously increased, while conventional treatment methods are often associated with high environmental burdens and low resource utilization efficiency. To systematically evaluate the environmental impacts and economic performance of different Chinese medicine residues treatment options, this study conducted a comparative analysis of alternative treatment pathways based on an integrated eco-efficiency assessment framework. Four representative treatment scenarios were established, including Pleurotus ostreatus production, composting, landfilling, and incineration. The treatment of 1 t of Chinese medicine residues with a moisture content of 60% was selected as the functional unit. Life cycle assessment was carried out in accordance with ISO 14040 and ISO 14044 standards. The system boundary covered residue preprocessing, treatment processes, product outputs, pollutant emissions, and substitution benefits, including organic fertilizer substituting for chemical fertilizer production and electricity generation from incineration substituting for coal-fired power. Environmental impacts were quantified using the ReCiPe 2016 method at both midpoint and endpoint levels, evaluating impact categories such as global warming, ecotoxicity, land use, resource scarcity, and endpoint damages to human health, ecosystems, and resources. In parallel, an economic analysis incorporating equipment, materials, labor, and energy inputs was conducted. Eco-efficiency was subsequently calculated by integrating economic profit with environmental impacts to assess the overall sustainability of each treatment pathway. The results demonstrate substantial differences in environmental performance among the four treatment scenarios. Composting exhibited the lowest total environmental cost, at 5.36 Pt, followed by Pleurotus ostreatus cultivation. Compared with landfilling and incineration, the environmental impacts of Pleurotus ostreatus cultivation were reduced by 73.73% and 61.35%, respectively. Across all treatment pathways, damage to human health consistently represented the dominant contribution to total environmental burden. At the midpoint level, landfilling showed the highest global warming potential, reaching 1.29E+03 kg (CO₂ eq)·t^-1, primarily due to substantial emissions of methane and carbon dioxide under anaerobic conditions. In contrast, Pleurotus ostreatus production reduced global warming potential by 86.47% compared with landfilling, mainly as a result of avoided chemical fertilizer production and efficient biomass utilization. Economic analysis revealed that the total treatment cost of Pleurotus ostreatus production was 1330.22 ¥·t^-1. However, revenues generated from mushroom products and organic fertilizer derived from spent mushroom substrate reached 2213.08 ¥·t^-1, resulting in a net profit of 882.86 ¥·t^-1. Composting achieved a lower but still positive economic profit of 348.26 ¥·t^-1.In comparison, composting, landfilling, and incineration all resulted in economic losses under current market conditions, mainly due to low product value or the lack of competitive marketable outputs. Among the four treatment options, Pleurotus ostreatus production achieved the highest eco-efficiency, at 148.86 ¥·Pt^-1, followed by composting at 64.94 ¥·Pt^-1, while the eco-efficiencies of the remaining treatment methods were negative. Overall, utilizing Chinese medicine residues for Pleurotus ostreatus production represents a treatment pathway that combines effective resource recovery with significant environmental impact mitigation. By integrating life cycle assessment with economic analysis to perform a comprehensive eco-efficiency evaluation, this study provides quantitative evidence for optimizing Chinese medicine residues management strategies and offers scientific support for the development of circular agriculture and sustainable resource utilization within the traditional Chinese medicine industry.