Catabolism of caffeine (1,3,7-trimethylxanthine) in microorganisms commences via two possible mechanisms: demethylation and oxidation. Through the demethylation route, the major metabolite formed in fungi is theophylline (1,3-dimethylxanthine), whereas theobromine (3,7-dimethylxanthine) is the major metabolite in bacteria. In certain bacterial species, caffeine has also been oxidized directly to trimethyl uric acid in a single step. The conversion of caffeine to its metabolites is primarily brought about by N-demethylases (such as caffeine demethylase, theobromine demethylase and heteroxanthinedemethylase), caffeine oxidase and xanthine oxidase that are produced by several caffeine-degrading bacterial species such as Pseudomonas putida and species within the genera Alcaligenes, Rhodococcus and Klebsiella. Development of biodecaffeination techniques using these enzymes or using whole cells offers an attractive alternative to the present existing chemical and physical methods removal of caffeine, which are costly, toxic and non-specific to caffeine. This review mainly focuses on the biochemistry of microbial caffeine degradation, presenting recent advances and the potential biotechnological application of caffeine-degrading enzymes.