A popular approach for improving transdermal drug delivery involves the use of penetration enhancers (sorption promoters or accelerants) which penetrate into skin to reversibly reduce the barrier resistance. The potential mechanisms of action of penetration enhancers include disruption of intercellular lipid and/or keratin domains and tight junctions. This results in enhanced drug partitioning into tissue, altered thermodynamic activity/solubility of drug etc. Synthetic chemicals (solvents, azones, pyrrolidones, surfactants etc.) generally used for this purpose are rapidly losing their value in transdermal patches due to reports of their absorption into the systemic circulation and subsequent possible toxic effect upon long term application. Terpenes are included in the list of Generally Recognized As Safe (GRAS) substances and have low irritancy potential. Their mechanism of percutaneous permeation enhancement involves increasing the solubility of drugs in skin lipids, disruption of lipid/protein organization and/or extraction of skin micro constituents that are responsible for maintenance of barrier status. Hence, they appear to offer great promise for use in transdermal formulations. This article is aimed at reviewing the mechanisms responsible for percutaneous permeation enhancement activity of terpenes, which shall foster their rational use in transdermal formulations.