Carotenoids are lipid-soluble compounds that are present in nature, including plants and microorganisms such as fungi, certain bacteria, and algae. In fungi, they are widely present in almost all taxonomic classifications. Fungal carotenoids have gained special attention due to their biochemistry and the genetics of their synthetic pathway. The antioxidant potential of carotenoids may help fungi survive longer in their natural environment. Carotenoids may be produced in greater quantities using biotechnological methods than by chemical synthesis or plant extraction. The initial focus of this review is on industrially important carotenoids in the most advanced fungal and yeast strains, with a brief description of their taxonomic classification. Biotechnology has long been regarded as the most suitable alternative way of producing natural pigment from microbes due to their immense capacity to accumulate these pigments. So, this review mainly presents the recent progress in the genetic modification of native and non-native producers to modify the carotenoid biosynthetic pathway for enhanced carotenoid production, as well as factors affecting carotenoid biosynthesis in fungal strains and yeast, and proposes various extraction methods to obtain high yields of carotenoids in an attempt to find suitable greener extraction methods. Finally, a brief description of the challenges regarding the commercialization of these fungal carotenoids and the solution is also given.