The effect of various concentrations (0%, 5%, 7.5%, 10%, and 12.5% V/m) of grapefruit essential oil (GEO) was studied on the on thermal, structural, mechanical, gas barrier, and antimicrobial properties of polylactic acid (PLA)/GEO composite film. By reducing the intermolecular force of polymer chains, GEO improved the flexibility of the composite film and showed a certain plasticization effect on the films. The presence of GEO decreased the crystallinity of PLA phase. The water vapor barrier properties of the films significantly decreased with increasing GEO content. Additionally, the incorporation of GEO in the PLA polymer matrix improved the antimicrobial activity of packaging films. PLA packaging films with or without GEO were used for preservation of button mushroom (Agaricus bisporus). The results indicate that PLA/GEO composite film is more effective in retaining the firmness, reducing the microbial count, and maintaining a high overall acceptability of mushrooms than pure PLA and low-density polyethylene (LDPE) films. Therefore, the results suggest that PLA/GEO composite film is a useful packaging material for extending the shelf life of button mushrooms.