"The name 'Fairy Ring' comes from an old myth and from superstition that mushrooms growing in a circle represent the path of dancing fairies. So, you can see that fairy rings are not something new, they have been around for many, many years. Fairy rings may appear in a variety of ways in lawns. There are four kinds of fairy rings. 1. The most common is a large ring of dark-green grass, with no mushrooms. 2. Another type contains a ring of mushrooms as well as the ring of stimulated, dark green grass. 3. A third type contains only a ring of mushrooms, with no evidence of unusual grass growth. 4. Occasionally a fairy ring will produce an arc of dead grass. The dead grass is usually caused of water, not by the fungus killing the grass. The fairy ring fungus creates such a dense mat that it does not allow water to penetrate. the grass dies from the lack of water, even though you are watering your lawn regularly. Typically the rest of the grass, both inside and outside of the ring, is not affected by the fairy ring fungus and does not show unusual growth. There is not a good control for fairy ring but there are a few things you can do to minimize the appearance." http://www.jlgardencenter.com/uploads/handouts/Lawn%20Disease%20FairyRing.pdf
1. Start off by removing the mushrooms and dispose of them in the garbage (some recommend burning them). (some suggest starting the process early spring) Poke holes in the fairy ring about 2 inches apart from each other and a few inches deep the whole way around the ring. Mix together 1/2 gallon of water for every square foot of lawn that is infested with the fairy ring and add 2 tbsp. of liquid dish soap for every 3 gallons of water. Then pour dish soap the whole way around the ring.
2. Soak the area daily for four to six weeks. Use the dish liquid each time to aid accessibility to the water.
3. Following a month of this treatment, using a high nitrogen fertilizer, fertilize the area.
The above is not a cure. I have seen it used and recommended by a local greenhouse with fairly good success. It will definitely mask the problem and aid the grass to grow. Be careful of cutting the grass too short as this stresses the grass, allowing it to dry out and burn faster in the heat.
When cutting your grass, mow this area first then disinfect the underside of your mower with a fungicide or bleach solution. Clean your footwear too as they can transfer the spore to other areas of the lawn.
Aerate your lawn spring and/or fall. Don't allow it to dry out. The mushrooms prefer a dry lawn and multiply quickly. The roots of the fungus grow in a thick matt below the surface of the lawn, robbing the roots of the lawn of water and nutrients, thus killing the lawn.
Drastic measures include total removal of the affected area and the soil below and 18 inches beyond the circle. New soil and sod or seed can be put down afterwards. Some sources recommend sterilizing the area first (bleach solution).
Another way to help control fairy ring (I found this on the web but haven't tried it) is to make holes a foot apart all the way around and through the ring - about 12" to 18" deep. Fill the holes with a dish soap and water solution (5 to 10 tablespoons per gallon of water). After letting the dish soap soak for an hour or two, fill the holes with a solution of water mixed with either Consan or Fungaway. These fungicides may provide some limited control of the fairy ring fungi. Check with your local greenhouse for a similar fungicide. Chemical controls may need to be reapplied two or three times each summer for two or three years before you see any results.