Terpenoids comprise a highly diverse group of natural products. In addition to their basic carbon skeleton, they differ from one another in their functional groups. Functional groups attached to the carbon skeleton are the basis of the terpenoids' diverse properties. Further modifications of terpene olefins include the introduction of acyl-, aryl-, or sugar moieties and usually start with oxidations catalyzed by cytochrome P450 monooxygenases (P450s, CYPs). P450s are ubiquitously distributed throughout nature, involved in essential biological pathways such as terpenoid biosynthesis as well as the tailoring of terpenoids and other natural products. Their ability to introduce oxygen into nonactivated C-H bonds is unique and makes P450s very attractive for applications in biotechnology. Especially in the field of terpene oxidation, biotransformation methods emerge as an attractive alternative to classical chemical synthesis. For this reason, microbial P450s depict a highly interesting target for protein engineering approaches in order to increase selectivity and activity, respectively. Microbial P450s have been described to convert industrial and pharmaceutically interesting terpenoids such as ionones, limone, valencene, resin acids, and triterpenes (including steroids) as well as vitamin D3. Highly selective and active mutants have been evolved by applying classical site-directed mutagenesis as well as directed evolution of proteins. As P450s usually depend on electron transfer proteins, mutagenesis has also been applied to improve the interactions between P450s and their respective redox partners. This chapter provides an overview of terpenoid hydroxylation reactions catalyzed by bacterial P450s and highlights the achievements made by protein engineering to establish productive hydroxylation processes.