Terpenoids, the most abundant compounds in natural products, are a set of important secondary metabolites in plants with diverse structures. Terpenoids play key roles in plant growth and development, response to the environment, and physiological processes. As raw materials, terpenoids were also widely used in pharmaceuticals, food, and cosmetics industries. Terpenoids possess antitumor, anti-inflammatory, antibacterial, antiviral, antimalarial effects, promote transdermal absorption, prevent and treat cardiovascular diseases, and have hypoglycemic activities. In addition, previous studies have also found that terpenoids have many potential applications, such as insect resistance, immunoregulation, antioxidation, antiaging, and neuroprotection. Terpenoids have a complex structure with diverse effects and different mechanisms of action. Activities and mechanisms of terpenoids were reviewed in this paper. The development and application prospect of terpenoid compounds were also prospected, which provides a useful reference for new drug discovery and drug design based on terpenoids.