Light Detection And Ranging (LiDAR) is an active remote sensing technology for acquiring high resolution 3D terrain and vegetation structure parameters over multiple tempo-spatial scales, which can help to accurately monitor and model forest ecosystem dynamics. Consequently it plays an important role in understanding the impact of such dynamics on the carbon cycle and global climate change, and promoting biodiversity conservation. In this paper, we review the concepts and recent developments of LiDAR and explore the application of LiDAR in generating terrain models (e.g. digital elevation and digital surface models) and retrieving forest biophysical parameters (e.g. individual tree locations, leaf area index, volumes, biomass and carbon stocks). Finally, we present challenges for LiDAR in forestry applications, and suggest three major research issues for future study. We believe that there is an inevitable trend to constructing a digital ecosystem research network via combining spaceborne, airborne, and ground-based sensor measurements in an integrated platform, where LiDAR can provide an accurate and efficient solution for capturing 3D environmental variables. Thus, LiDAR will contribute to improving the relationship between man and nature in decision-making processes and eventually realizing a harmonious coexistence.