Subcritical water, that is, water above the boiling and below critical point, is a unique and sustainable reaction medium. Based on its solvent properties, in combination with the often considerable intrinsic water content of natural biomass, it is often considered as a potential solvent for biomass processing. Current knowledge on biomass transformation in subcritical water is, however, still rather scattered without providing a consistent picture. Concentrating on fundamental physical and chemical aspects, this review summarizes the current state of knowledge of hydrothermal biomass conversion in subcritical water. After briefly introducing subcritical water as a reaction medium, its advantages for biomass processing compared to other thermal processes are highlighted. Subsequently, the physical-chemical properties of subcritical water are discussed in the light of their impact on the occurring chemical reactions. The influence of major operational parameters, including temperature, pressure, and reactant concentration on hydrothermal biomass transformation processes are illustrated for selected carbohydrates. Major emphasis is put on the nature of the carbohydrate monomers, since the conversion of the respective polymers is analogous with the additional prior step of hydrolytic depolymerization.