Carotenoids are terpenoid pigments widespread in nature, produced by bacteria, fungi, algae and plants. They are also found in animals, which usually obtain them through the diet. Carotenoids in plants provide striking yellow, orange or red colors to fruits and flowers, and play important metabolic and physiological functions, especially relevant in photosynthesis. Their functions are less clear in non-photosynthetic microorganisms. Different fungi produce diverse carotenoids, but the mutants unable to produce them do not exhibit phenotypic alterations in the laboratory, apart of lack of pigmentation. This review summarizes the current knowledge on the functional basis for carotenoid production in fungi. Different lines of evidence support a protective role of carotenoids against oxidative stress and exposure to visible light or UV irradiation. In addition, the carotenoids are intermediary products in the biosynthesis of physiologically active apocarotenoids or derived compounds. This is the case of retinal, obtained from the symmetrical oxidative cleavage of β-carotene. Retinal is the light-absorbing prosthetic group of the rhodopsins, membrane-bound photoreceptors present also in many fungal species. In Mucorales, β-carotene is an intermediary in the synthesis of trisporoids, apocarotenoid derivatives that include the sexual hormones the trisporic acids, and they are also presumably used in the synthesis of sporopollenin polymers. In conclusion, fungi have adapted their ability to produce carotenoids for different non-essential functions, related with stress tolerance or with the synthesis of physiologically active by-products.