The growing interest in timber construction and using more wood for civil engineering applications has given highlighted importance of developing non-destructive evaluation (NDE) methods for structural health monitoring and quality control of wooden construction. This study, critically reviews the acoustic emission (AE) method and its applications in the wood and timber industry. Various other NDE methods for wood monitoring such as infrared spectroscopy, stress wave, guided wave propagation, X-ray computed tomography and thermography are also included. The concept and experimentation of AE are explained, and the impact of wood properties on AE signal velocity and energy attenuation is discussed. The state-of-the-art AE monitoring of wood and timber structures is organized into six applications: (1) wood machining monitoring; (2) wood drying; (3) wood fracture; (4) timber structural health monitoring; (5) termite infestation monitoring; and (6) quality control. For each application, the opportunities that the AE method offers for in-situ monitoring or smart assessment of wood-based materials are discussed, and the challenges and direction for future research are critically outlined. Overall, compared with structural health monitoring of other materials, less attention has been paid to data-driven methods and machine learning applied to AE monitoring of wood and timber. In addition, most studies have focused on extracting simple time-domain features, whereas there is a gap in using sophisticated signal processing and feature engineering techniques. Future research should explore the sensor fusion for monitoring full-scale timber buildings and structures and focus on applying AE to large-size structures containing defects. Moreover, the effectiveness of AE methods used for wood composites and mass timber structures should be further studied.