Forest biotechnology is rapidly advancing from conventional breeding toward molecular design, enabling the development of genetically modified trees (GMTs) with traits such as accelerated growth, stress resilience, and improved wood properties. This review systematically examines recent breakthroughs in tree genetic engineering, beginning with traditional methods and progressing to CRISPR-based precision editing and multi-omics-guided trait design. We highlight applications in wood quality (e.g., lignin reduction in Populus spp.), drought tolerance (e.g., PagHyPRP1 and PtoMYB142 editing), phytoremediation (e.g., heavy metal accumulation in poplar), and carbon sequestration. We also evaluate ecological and socio-regulatory challenges, including gene flow risks and public acceptance. Based on this integrated analysis, we outline future directions for responsible deployment of GMTs in sustainable forestry and global carbon neutrality efforts.