Cytochrome P450 enzymes (CYPs) play major roles in generating highly functionalized terpenoids, but identifying the exact biotransformation step(s) catalyzed by plant CYP in terpenoid biosynthesis is extremely challenging. Tanshinones are abietane-type norditerpenoid naphthoquinones that are the main lipophilic bioactive components of the Chinese medicinal herb danshen ( Salvia miltiorrhiza ). Whereas the diterpene synthases responsible for the conversion of ( E,E,E )-geranylgeranyl diphosphate into the abietane miltiradiene, a potential precursor to tanshinones, have been recently described, molecular characterization of further transformation of miltiradiene remains unavailable. Here we report stable-isotope labeling results that demonstrate the intermediacy of miltiradiene in tanshinone biosynthesis. We further use a next-generation sequencing approach to identify six candidate CYP genes being coregulated with the diterpene synthase genes in both the rhizome and danshen hairy roots, and demonstrate that one of these, CYP76AH1, catalyzes a unique four-electron oxidation cascade on miltiradiene to produce ferruginol both in vitro and in vivo. We then build upon the previous establishment of miltiradiene production in Saccharomyces cerevisiae , with incorporation of CYP76AH1 and phyto-CYP reductase genes leading to heterologous production of ferruginol at 10.5 mg/L. As ferruginol has been found in many plants including danshen, the results and the approaches that were described here provide a solid foundation to further elucidate the biosynthesis of tanshinones and related diterpenoids. Moreover, these results should facilitate the construction of microbial cell factories for the production of phytoterpenoids.