Nootkatone, a sesquiterpenoid widely used in the food and cosmetics industries, exhibits diverse biological activities and pharmaceutical prospects. Modification of nootkatone to create new derivatives with desirable activities has attracted significant attention. For this purpose, cytochrome P450 monooxygenases (P450 or CYP) are attractive candidates due to their ability to perform regio- and stereoselective hydroxylation at allylic C-H bonds. In this study, CYP154C4 from Streptomyces cavourensis YBQ59 was cloned and expressed in Escherichia coli. By screening 64 candidate substrates, this P450 was found to catalyze the regio- and stereoselective hydroxylation of nootkatone, yielding a single product, 3β-hydroxynootkatone. Using a whole-cell E. coli system expressing CYP154C4, supported by the heterologous redox partners YkuN from Bacillus subtilis and FdR from E. coli, 3β-hydroxynootkatone was produced on a preparative scale. The structure of this compound was determined by 1H NMR, 13C NMR, NOESY, HMBC, and HSQC. The kinetics of product formation were analyzed using HPLC, and the Km and Kcat values were calculated. Furthermore, structural insights into the selective hydroxylation of nootkatone were elucidated by molecular docking. 3β-Hydroxynootkatone, recently synthesized semi-synthetically from nootkatone, has been reported to exhibit a higher insecticidal activity than its parent compound. Additionally, the functionalization of nootkatone with N-acyl-2-aminothiazole at the C3 and C2 positions, yielding an α-glucosidase inhibitor, has also been previously described. Therefore, 3β-hydroxynootkatone has great potential for further research and for synthesizing new derivatives with valuable biological activities for agricultural and medicinal applications.