Thymol and carvacrol are phenolic monoterpenes found in thyme, oregano, and several other species of the Lamiaceae. Long valued for their smell and taste, these substances also have antibacterial and anti-spasmolytic properties. They are also suggested to be precursors of thymohydroquinone and thymoquinone, monoterpenes with anti-inflammatory, antioxidant, and antitumor activities. Thymol and carvacrol biosynthesis has been proposed to proceed by the cyclization of geranyl diphosphate to gamma-terpinene, followed by a series of oxidations via p-cymene. Here, we show that gamma-terpinene is oxidized by cytochrome P450 monooxygenases (P450s) of the CYP71D subfamily to produce unstable cyclohexadienol intermediates, which are then dehydrogenated by a short-chain dehydrogenase/reductase (SDR) to the corresponding ketones. The subsequent formation of the aromatic compounds occurs via keto-enol tautomerisms. Combining these enzymes with gamma-terpinene in in vitro assays or in vivo in Nicotiana ben-thamiana yielded thymol and carvacrol as products. In the absence of the SDRs, only p-cymene was formed by rearrangement of the cyclohexadienol intermediates. The nature of these unstable intermediates was inferred from reactions with the gamma-terpinene isomer limonene and by analogy to reactions catalyzed by related enzymes. We also identified and characterized two P450s of the CYP76S and CYP736A subfamilies that catalyze the hydroxylation of thymol and carvacrol to thymohydroquinone when heterologously expressed in yeast and N. benthamiana. Our findings alter previous views of thymol and carvacrol formation, identify the enzymes involved in the biosynthesis of these phenolic monoterpenes and thymohydroquinone in the Lamiaceae, and provide targets for metabolic engineering of high-value terpenes in plants.