The marine environment with its vast biological diversity encompasses many organisms that produce bioactive natural products. Marine microorganisms are rich sources of compounds from many structural classes with a multitude of biological activities. The biosynthesis of microbial natural products depends on a variety of biotic and abiotic factors in the marine environment, including temperature, nutrients, salinity and interaction with other microorganisms. Terpenoids, as one of the most important groups of natural products in terrestrial microorganisms are important metabolites for marine microorganisms. Here, we have reviewed the chemistry, biosynthesis and pharmacological activities of terpenoids, extracted from marine microbes, and then survey their potential applications in drug development. We also discussed the different habitats in which marine microorganisms are found including sediments, the flora, such as seaweeds, sea grasses, and mangroves as well as the fauna like sponges and corals. Amongst these habitats, marine sediments are the major source for terpenoids producing microorganisms. The marine bacteria produce mostly meroterpenoids, while the fungi are well known for production of isoprenoids. Interestingly, marine-derived microbial terpenoids have some structural characteristics such as halogenation, which are catalyzed by specific enzymes with distinct substrate specificity. These compounds have anticancer, antibacterial, antifungal, antimalarial and anti-inflammatory properties. The information collected here might provide useful clues for developing new medications.