Sandalwood is highly valued for its aromatic heartwood and essential oil, which is not only broadly applied in the fragrance industry, but also has various biological activities: anti-cancer, anti-tumor, anti-viral, anti-diarrhoeal, etc. The main contributors of sandalwood essential oil fragrance are (Z)-α-santalol and (Z)-β-santalol. Global sandalwood resources are often in short supply because of slow growth, habitat destruction, illegal use of natural stocks, over exploitation, plant disease and insect pests. Thus, various methods are used to overcome these shortcomings to obtain more sandalwood essential oil or terpenoids. At first, an understanding of the molecular mechanism of sandalwood terpenoid biosynthesis is urgently required. Here, we review the mechanism of sandalwood terpenoid biosynthesis and multiple strategies for increasing the yield of essential oil and obtaining sandalwood terpenoids by biotechnological methods. Three major topics are discussed: (1) the metabolic pathway of sandalwood terpenoid biosynthesis, (2) how to obtain sandalwood terpenoids or essential oil by chemical synthesis, the application of elicitors and the plant cell culture, and (3) heterologous synthesis of sandalwood terpenoids.