Terpenes are compounds that include monoterpenes, sesquiterpenes, diterpenes, and terpenes, where isoprene is the basic structural unit of multiple oxygenated hydrocarbons. Terpenes are often found in plants, especially in some Zingiberaceae or tulips, and they have been obtained by direct extraction, chemical synthesis, and microorganisms. They exhibit anti-bacterial, anti-viral, anti-oxidant, and analgesic activity, aid digestion, and have other biological activities. Terpenes are widely used as factors in food health and as anti-cancer treatments. They are used especially as active substances in fermented Chinese baijiu products and gives Chinese baijiu its fruity aroma. To a certain extent, terpenes affect the quality of baijiu. In pharmaceutical products, terpenes, especially limonene and elemene, have strong biological activity that reduces the mitosis of tumor cells, induces tumor cell apoptosis, and inhibits tumor cell growth. However, the low yield of terpenes limits its application. Therefore, we review the sources of terpenes, focus on the biosynthesis pathway of sesquiterpenes, and explore the latest research progress on terpenes that play a biologically active and functional role in fermented products and pharmaceutical products, especially in the development and utilization of the Chinese baijiu industry. We provide new research ideas for the improvement and optimization of terpenes in various industries.