Fungal Growth is mainly used for one interesting purpose right now, and that's to make things explode! Getting this stuff can be a bit difficult, because it's near an area that is basically covered in pesticide that will have you losing health as you walk through it! Thankfully, we can still manage to obtain the fungus we're looking for without wading through poisonous gas.
To get Fungal Growth in Grounded, you will need to head over to the southwestern side of the map with all of the dry grass and the huge rake landmark. In this area you can find two insects that can drop Fungal Growth for you. One is the Infected Mite and the other is the Infected Weevil.
As mentioned, you will want to head southwest towards the dry grass and the big rake. You will eventually come across an area that is clouded in pesticide or some kind of toxic chemicals. You don't need to enter into it, you should start coming across the Infected Mites and Weevils by just being near the area. If you don't find them immediately, start walking south along the border of the toxins and they will find you eventually.
The Infected Weevil, as pictured above, is relatively easy to take care of and will die in a few hits. The Infected Weevils, however, are a bit more difficult because once you hit them or let them get too close to you, they will then explode! So, if you see one of those running towards you, try to get it to start its explosion countdown by giving it a quick smack or temporarily pausing. Once it engages in its final gasp, it will explode and you can loot the Fungal Growth afterwards!
Fungal Growth is mainly used for making Bombs in the game. You can also make some cosmetic stuff and an Ant Confuser Bomb that will stun ants if you're having an issue with them! The Bomb requires you to have at least 2 Fungal Growth, 1 Ant Egg, and 4 Dry Grass Chunks to create.