Biotransformation refers to the chemical alteration of substances within living organisms, typically involving enzymatic reactions. These reactions make compounds more water-soluble so they can be more easily excreted from the body. Biotransformation occurs in three phases - Phase I involves oxidation, reduction, and hydrolysis reactions; Phase II involves conjugating reactions like glucuronidation and sulfation; Phase III involves transport of conjugated compounds out of cells and organs. The liver is a major site of biotransformation, with cytochrome P450 enzymes and conjugating enzymes playing important roles in Phase I and Phase II reactions. Biotransformation is vital for the metabolism of drugs and other xenobiotics in the body.