From the Super Mario Wiki, the Mario encyclopedia
Mushroom Island is a location in Paper Mario: The Origami King, an island located in The Great Sea. It is charted in territory E-4 and indicated by a Mushroom icon on the map. Notably, it is between Heart Island and Bonehead Island. There are no collectible treasures to be found, Not-Bottomless Holes to be filled, or ? Blocks to be struck, and only three Toads to rescue.
Upon closer inspection, it is discovered the small house on Mushroom Island is actually encased in a large chunk of ice. To the right of the house is a Toad disguised as a blue origami fish. He claims to have swum to the island to meet up with his friend, although he does not know where he is. To the left side of the house is a tree Mario can hammer to get confetti and spawn a Magic Circle. By using the abilities of the Fire Vellumental, Olivia is able to melt the block of ice, allowing Mario to enter the house. However, due to the back door not having a doorknob, Mario is unable to enter the backyard.
After getting the Mushroom Handle from the chest on Full Moon Island, Mario is able to insert it into the back door and enter the backyard, where Luigi is resting on a folding chair. He claims to have found the key to Peach's Castle, which turns out to just be the Diamond Key. Olivia explains that it is the wrong key, which Luigi understands. He then decides to find the owner of the house and thank them for allowing him to rest there.
There is not much else in the backyard aside from a statue reading "Seek ye a path to paradise" and another Toad disguised as a flopping blue origami fish. He thanks Mario by indicating a spot on the map to fish. There is a set of stairs leading down to the basement. Mario, Luigi, and Olivia find themselves in an origami crafting area, displaying the set for Origami Castle. Olivia reveals this place as the place where she was crafted by her brother. There is a book taped on top of a bookcase - Luigi allows Mario to use him as a spring to reach it. It turns out to be a book holding the secret to the Fold of Life, the same technique used to craft Olivia and King Olly.
Suddenly, a Magic Circle appears, allowing Mario to use the 1,000-Fold Arms to pull off some of the back wall, freeing the Origami Craftsman. He explains how he used a special method to make Olly special, making him proud, strong and angry, leading him to trap the craftsman in the back wall. He reveals he had planned to use them as part of Origami Castle, ultimately regretting his decision to use the Fold of Life. Olivia assures him they can stop Olly, inspiring Luigi to set out to find the true key. Mario and Olivia decide to travel to Diamond Island for their next clue.
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