The DU Lounge

From Wikipedia:

The song was rumoured to be about smoking dried banana skins, which was believed to be a hallucinogenic drug in the 1960s, though this aspect of bananas has since been debunked.[9] According to Donovan's liner notes for the album Donovan's Greatest Hits, the rumour that one could get high from smoking dried banana skins was started by Country Joe McDonald in 1966, and Donovan heard the rumour three weeks before "Mellow Yellow" was released as a single.

According to The Rolling Stone Illustrated Encyclopedia of Rock and Roll, he admitted later the song made reference to a vibrator; an "electrical banana" as mentioned in the lyrics.[10] Donovan stated, "I was reading a newspaper and on the back there was an ad for a yellow dildo called the mellow yellow," he said. "Really, you know the 'electric banana' was right in there and gave it away. And that's what the song's about." This definition was re-affirmed in an interview with NME magazine: "it's about being cool, laid-back, and also the electrical bananas that were appearing on the scene — which were ladies' vibrators."[11]