In a large saucepan over medium to medium-high heat, sauté sausage and onion, stirring occasionally.
When the pink color in the sausage has almost disappeared, fold in the mushrooms and garlic. Cook for 5 more minutes, stirring occasionally until mushrooms are softened.
Add water, crushed tomatoes, diced tomatoes, dried basil, dried oregano, dried thyme, dried rosemary, and pepperoni. Bring to a boil and then immediately reduce heat and simmer for 20 minutes, stirring occasionally.
Before serving, stir in Parmesan cheese. Top with mozzarella cheese. Garnish with fresh basil and/or parsley, if desired.
