Sheep and goats are valuable livestock species that have been raised for their production of meat, milk, fiber, and other by-products. Due to their suitable size, short gestation period, and abundant secretion of milk, sheep and goats have become important model animals in agricultural, pharmaceutical, and biomedical research. Genome engineering has been widely applied to sheep and goat research. Pronuclear injection and somatic cell nuclear transfer represent the two primary procedures for the generation of genetically modified sheep and goats. Further assisted tools have emerged to enhance the efficiency of genetic modification and to simplify the generation of genetically modified founders. These tools include sperm-mediated gene transfer, viral vectors, RNA interference, recombinases, transposons, and endonucleases. Of these tools, the four classes of site-specific endonucleases (meganucleases, ZFNs, TALENs, and CRISPRs) have attracted wide attention due to their DNA double-strand break-inducing role, which enable desired DNA modifications based on the stimulation of native cellular DNA repair mechanisms. Currently, CRISPR systems dominate the field of genome editing. Gene-edited sheep and goats, generated using these tools, provide valuable models for investigations on gene functions, improving animal breeding, producing pharmaceuticals in milk, improving animal disease resistance, recapitulating human diseases, and providing hosts for the growth of human organs. In addition, more promising derivative tools of CRISPR systems have emerged such as base editors which enable the induction of single-base alterations without any requirements for homology-directed repair or DNA donor. These precise editors are helpful for revealing desirable phenotypes and correcting genetic diseases controlled by single bases. This review highlights the advances of genome engineering in sheep and goats over the past four decades with particular emphasis on the application of CRISPR/Cas9 systems.