Carotenoids represent a group of valuable molecules for the pharmaceutical, chemical, food and feed industries, not only because they can act as vitamin A precursors, but also for their coloring, antioxidant and possible tumor-inhibiting activity. Animals cannot synthesize carotenoids, and these pigments must therefore be added to the feeds of farmed species. The synthesis of different natural commercially important carotenoids (beta-carotene, torulene, torularhodin and astaxanthin) by several yeast species belonging to the genera Rhodotorula and Phaffia has led to consider these microorganisms as a potential pigment sources. In this review, we discuss the biosynthesis, factors affecting carotenogenesis in Rhodotorula and Phaffia strains, strategies for improving the production properties of the strains and directions for potential utility of carotenoid-synthesizing yeast as a alternative source of natural carotenoid pigments.