Terpenoids are the most diverse class of specialized metabolites in plants, despite being derived from two simple precursors, isopentenyl diphosphate (IPP) and dimethylallyl diphosphate (DMAPP). Terpene biosynthesis can be broadly divided into two stages: the formation of upstream carbon-hydrogen scaffolds and the downstream modification of these scaffolds. In this review, we first highlight recent advances, since 2020, in the biosynthesis of upstream carbon-hydrogen backbones. We then discuss the techniques and methodologies used to elucidate the molecular details of downstream modification reactions, particularly in the context of medicinal plants. Finally, we explore and forecast the future of biological function studies of plant terpenoids, with a specific focus on their roles in planta. This review aims to provide a comprehensive overview of current research trends and insights into terpene biosynthesis and functional characterization in plants.