Hericium erinaceus is typically used in traditional Chinese medicine for mucosal protection, healing of gastric ulcers, and treatment of gastritis. We purified from the cultured mycelia of H. erinaceus a polysaccharide with anti-gastric ulcer and antigastritis activity, but its effects on gastric malignancy have not been elucidated. We examined the differential effects of this purified polysaccharide, named EP-1, on the human gastric (GES-1) cell line and a precancerous cell line (MC) that was transformed from GES-1 using N-methyl-N'-nitro-N-nitrosoguanidine. We observed that the polysaccharide potently induced cell apoptosis and cell cycle arrest at the G0/G1 phase in the MC cell line but did not have any effect on the GES-1 cell line at the same doses. Further mechanistic studies revealed that the polysaccharide exerted its activity through an apoptosis-associated pathway by modulating the expression of Bax, Bcl-2, and caspase-3. Differential effects of the polysaccharide on the GES-1 and MC cell lines indicate that the polysaccharide was effective in preventing gastric cancer progression.