Wood is an invaluable asset to human society due to its renewable nature, making it suitable for both sustainable energy production and material manufacturing. Additionally, wood derived from forest trees plays a crucial role in sequestering a significant portion of the carbon dioxide fixed during photosynthesis by terrestrial plants. Nevertheless, with the expansion of the global population and ongoing industrialization, forest coverage has been substantially decreased, resulting in significant challenges for wood production and supply. Wood production practices have changed away from natural forests toward plantation forests. Thus, understanding the underlying genetic mechanisms of wood formation is the foundation for developing high-quality, fast-growing plantation trees. Breeding ideal forest trees for wood production using genetic technologies has attracted the interest of many. Tremendous studies have been carried out in recent years on the molecular, genetic, and cell-biological mechanisms of wood formation, and considerable progress and findings have been achieved. These studies and findings indicate enormous possibilities and prospects for tree improvement. This review will outline and assess the cellular and molecular mechanisms of wood formation, as well as studies on genetically improving forest trees, and address future development prospects.