Terpenoids represent one of the largest class of chemicals in nature, which play important roles in food and pharmaceutical fields due to diverse biological and pharmacological activities. Microorganisms are recognized as a promising source of terpenoids due to its short growth cycle and sustainability. Importantly, microalgae can fix inorganic carbon through photosynthesis for the growth of themselves and the biosynthesis of various terpenoids. Moreover, microalgae possess effective biosynthesis pathways of terpenoids, both the eukaryotic mevalonic acid (MVA) pathway and the prokaryotic methyl-D-erythritol 4-phosphate (MEP) pathway. In recent years, various genetic engineering strategies have been applied to increase target terpenoid yields, including overexpression of the rate-limited enzymes and inhibition of the competing pathways. However, since gene-editing tools are only built in some model microalgae, fermentation strategies that are easier to be operated have been widely successful in promoting the production of terpenoids, such as changing culture conditions and addition of chemical additives. In addition, an economical and effective downstream process is also an important consideration for the industrial production of terpenoids, and the solvent extraction and the supercritical fluid extraction method are the most commonly used strategies, especially in the industrial production of beta-carotene and astaxanthin from microalgae. In this review, recent advancements and novel strategies used for terpenoid production are concluded and discussed, and new insights to move the field forward are proposed.