Although it is a biologically safe substance with no known LD-40 (lethal dose required to kill 40% of a sample size), risks are still present with psilocybin use. It can, with improper dosage or preparation, cause uncomfortable feelings such as anxiety, confusion, and "ego death". In predisposed individuals it has the potential to be the catalyst for a psychotic episode or even prolonged psychosis. It is important to note that approximately 1% of the population carries a hereditary predisposition to schizophrenia and therefore should not use psilocybin. 

Psilocybin's molecular structure is similar enough to serotonin that it acts as a serotonergic antagonist, binding to various derivatives of 5HT2 receptors and stimulating the production of Glutamate and BDNF, two important neurotransmitters associated with cognition, learning, and memory. It also drastically changes neural informational paths, by attenuating the default mode network, an area of the brain which is overactive in patients with depression. Additionally it interacts minimally and indirectly with dopaminergic system, unlike Selective Serotonin Reuptake Inhibitor's (SSRI's). These properties culminate in psilocybins ability to re-wire fear condition responses, alleviate anxiety, deepen emotion, increase focus, and stimulate creativity. 

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Check out the Pharmacology page for in-depth details on psilocybin's metabolic process, and visit the Peer Reviewed Studies page for links to support the claims made above.