The selective oxyfunctionalization of unsaturated fatty acids is difficult in chemical reactions, whereas regio- and stereoselective oxyfunctionalization is often performed in biocatalytic synthesis. Fatty acid oxygenases, including hydratases, lipoxygenases, dioxygenases, diol synthases, cytochrome P450 monooxygenases, peroxygenases, and 12-hydroxylases, are used to convert C16 and C18 unsaturated fatty acids to diverse regio- and stereoselective mono-, di-, and trihydroxy fatty acids via selective oxyfunctionalization. The formed hydroxy fatty acids or hydroperoxy fatty acids are metabolized to industrially important oxygenated chemicals such as lactones, green leaf volatiles, and bioplastic monomers, including ω-hydroxy fatty acids, α,ω-dicarboxylic acids, and fatty alcohols, by biocatalysts. For increased oxyfunctionalization of unsaturated fatty acids, enzyme engineering, functional and balanced expression in recombinant cells, selection of suitable catalyst types, and reaction engineering have been suggested. This review describes biocatalysts involved in the oxyfunctionalization of unsaturated fatty acids and the production of hydroxy fatty acids and oxygenated chemicals.