The physical mechanism and theory of cutting wood with a laser are discussed with respect to laser beam absorption and penetration, gas-jet assistance, and the characteristics of wood materials. Formulas for the basic relationships of the parameters are developed. The process of cutting wood with a laser is always accompanied by an exothermic reaction of distillation of wood material. The mechanism of thin-layer cutting is different from that of thick-lumber cutting. The former is a process in which a laser beam directly hits and vaporizes the wood. The latter is mainly a hot gas-jet ignited and sustained distillation process. Among the discussions on optimization of process, a suggestion of preheated gas-jet-assisted laser cutting is proposed