Biotransformations are useful methods for producing medicinal and agricultural chemicals from both active and inactive natural products with the introduction of chemical functions into remote sites of the molecules. Research on microbial biotransformations of commonly available sesquiterpenoids into more valuable derivatives has always been of interest because of their economical potential to the perfume, food, chemical and pharmaceutical industries. Fungal transformations of sesquiterpenoids have been less frequently studied compared with many other natural products. In recent years, however, much attention has been given to the exploitation of new products with enhanced biological activity using microorganisms. This review, covering the period from 1990 to 2006, summarizes our knowledge of the biotransformations of sesquiterpenoids by various fungi. Such transformations could lead to the discovery of new reaction pathways that might be useful in the design of new value-added products.