The aim of this study was to facilitate gene discovery for functional genome studies and to identify simple sequence repeat (SSR) markers for molecular-assisted selection in Phellinus linteus. The transcriptome of Phellinus linteus was sequenced using а high-throughput RNA sequencing system – the Illumina Hiseq 2000. A total of 16,383,818 clean sequencing reads, 35,532 contigs and 25,811 unigenes were postulated. Based on similarity searches with known proteins, 19,350 genes (74.97% of the unigenes) were annotated. In the present research, 19,266, 10,978 and 7831 unigenes were mapped in Nr, Swiss-Prot and clusters of orthologous groups (COG) classifications, respectively. Of all unigenes, 6845 were categorized into three functional groups, namely biological process, cellular components and molecular function and 11,088 were annotated to 108 pathways by searching the Kyoto Encyclopedia of Genes and Genomes pathway database. A total of 1129 SSRs were identified in these unigenes. In addition, 23 candidate genes, potentially involved in sterol biosynthesis, were identified and were worthy of further investigation.