Terpenoids play key roles in cellular metabolism and can have specialized functions. Their heterologous production in microbial hosts offers an alternative to natural extraction. Here, we developed a subcellular engineering approach in the model green alga Chlamydomonas reinhardtii by targeting both sesquiterpenoid synthases and cytochrome P450s (CYPs) to the plastid, exploiting its photosynthetic electron transport chain to drive CYP-mediated oxidation without reductase partners. Nuclear-encoded sesquiterpenoid synthases were expressed with farnesyl pyrophosphate synthase fusions and targeted to the plastid, while CYPs were modified for soluble localization in the plastid stroma by removing transmembrane domains. The plastid environment supported hydroxylation, epoxidation, and oxidation reactions, with functionalization efficiencies reaching 80 % of accumulated products. Carbon source availability influenced product ratios, revealing metabolic flexibility in the engineered pathways. Overall sesquiterpenoid yields ranged between 250–2500 μg L⁻¹ under screening conditions, establishing proof-of-concept for using plastid biochemistry in complex terpenoid biosynthesis. Living two-phase terpenoid extractions with different perfluorinated solvents revealed variable performances based on sesquiterpenoid functionalization and solvent type. This work demonstrates that photosynthetic electron transport can drive CYP-mediated functionalization in engineered subcellular compartments. However, improvements in photobioreactor cultivation concepts will be required to facilitate the use of algal chassis for scaled production.