Baijiu, otherwise known as the national liquor of China, is a well-known distilled spirit that has been produced for over 2000 years. Baijiu is a clear and transparent fermented alcoholic beverage containing more than 1870 volatile compounds, including esters, alcohols, aromatics, ketones, heterocycles, nitrogenous compounds, acids, aldehydes, terpenes, sulfur compounds, acetals, and lactones. This perspective describes the baijiu production process, summarizes recent progress in the development and study of baijiu flavor chemistry, discusses the effect of fermentation processing on baijiu flavor, and presents novel development trends in the baijiu industry in the dual directions of flavor and health. Furthermore, the direction of research and development for modernization in the baijiu industry is discussed and proposed.