1-Up Mushrooms Aren't Just A Gameplay Mechanic
Many people believe 1-Up Mushrooms don't exist in-universe and are simply a gameplay mechanic, this is far from the case. So for starters you can go to a Luma Shop and have a Lumalee transform into a 1-Up Mushroom, something that happens in-universe. Also, in Super Mario Galaxy you can receive letter from Mailtoad sent by Princess Peach, in it you are given 1-Up Mushrooms.
In the Mario & Luigi: Partner's In Time an Intern Shroob will give a 1-Up to a fallen comrade, and in Mario & Luigi: Paper Jam the Juniors will use 1-Up Mushrooms on each other if defeated.
In Super Mario Run there is the 1-Up Mushroom Statue and the 8-bit 1-Up Mushroom Statue you can get further confirming their existence.
In the various Mario Kart games there as been various sponsors using 1-Up Mushrooms. There is the 1-Up Coffee which actually shows they can be used for coffees, which goes along with the statue's claim of them having a life-changing flavor. There is 1-Up Fuel which tells us in-universe 1-Up Mushrooms are used as fuel for karts and other vehicles. This makes me wonder if there is a chemical reaction between 1-Up Mushrooms and Super Mushrooms when you use one in Mario Kart. Finally there is 1Up Racing and 1-Up Mushroom Car Insurance.
Another notable on that seems to be a subspecies of 1-Up Mushrooms is the Reshreshroom which looks similar to them but with stars and instead and it refreshes someone. I bring this up because I believe 1-Up can have a dual purpose of either refreshing a fallen ally or revival. Now why would I say revival? Well……
As we know Paper Mario is canon and in Super Paper Mario we are introduced to the Underwhere aka World -1 where people go when they game over and have no more extra lives. This confirms the existence of extra lives which would be provided for by 1-Ups, and that someone can run out of lives. Written by Eris the Lorekeeper