The small feasibility study, involving people with treatment-resistant depression, found psilocybin was safe and well-tolerated.
And, when given alongside supportive therapy, the compound helped reduce symptoms of depression in about half of the participants three months after treatment.
The research team, whose findings were published in The Lancet Psychiatry, warned strong conclusions cannot be made about the therapeutic benefits of psilocybin.
But they said the findings show more research in the field is now needed.
Study lead author Dr Robin Carhart-Harris, of Imperial College London, said: “This is the first time psilocybin has been investigated as a potential treatment for major depression.
“Treatment-resistant depression is common, disabling and extremely difficult to treat.
“New treatments are urgently needed, and our study shows psilocybin is a promising area of future research.
“The results are encouraging and we now need larger trials to understand whether the effects we saw in this study translate into long-term benefits, and to study how psilocybin compares to other current treatments.”
The most common current treatments for depression are cognitive behaviour therapy (CBT) and antidepressants. However, one in five patients with depression do not respond to any intervention, and many relapse.
Study senior author Professor David Nutt, former chair of the Advisory Committee on the Misuse of Drugs, said: “Previous animal and human brain imaging studies have suggested psilocybin may have effects similar to other antidepressant treatments.”
Prof Nutt, of Imperial College London, added: “Psilocybin targets the serotonin receptors in the brain, just as most antidepressants do, but it has a very different chemical structure to currently available antidepressants and acts faster than traditional antidepressants.”
The trial involved six men and six women with moderate to severe depression. The patients were classified as having treatment-resistant depression, having previously had two unsuccessful courses of antidepressants. Eleven had also received some form of psychotherapy.
Most of the patients reported short-term side-effects ranging from nausea to mild paranoia but one week after the treatment, all the patients showed some improvement in their symptoms of depression. Eight of the 12 patients achieved temporary remission.
Three months later, seven patients continued to show an improvement in symptoms and five were still in remission. Five patients showed some degree of relapse.
The researchers stressed most of the participants were self-referred - meaning they actively sought treatment, and may have expected some effect
They added the patients were carefully screened and given psychological support before, during and after the intervention.
The researchers said further research is needed to see how psilocybin compares to other current treatments.
Professor Philip Cowen, of Oxford University, said of the findings: “The key observation that might eventually justify the use of a drug like psilocybin in treatment-resistant depression is demonstration of sustained benefit in patients who previously have experienced years of symptoms despite conventional treatments, which makes longer-term outcomes particularly important.
“The data at three month follow-up - a comparatively short time in patients with extensive illness duration - are promising but not completely compelling, with about half the group showing significant depressive symptoms.
“Further follow-ups using detailed qualitative interviews with patients and family could be very helpful in enriching the assessment.”