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Novel energy production systems are needed that not only offer reductions in greenhouse gas emissions but also cause fewer overall environmental impacts. How to identify and implement more sustainable biofuel production alternatives, and how to overcome economic challenges for their implementation, is a matter of debate. In this study, the environmental impacts of alternative approaches to biofuel production (i.e., first, second, and third generation biofuels), with a focus on biodiversity and ecosystem services, were contrasted to develop a set of criteria for guiding the identification of sustainable biofuel production alternatives (i.e., those that maximize socioeconomic and environmental benefits), as well as strategies for decreasing the economic barriers that prevent the implementation of more sustainable biofuel production systems. The identification and implementation of sustainable biofuel production alternatives should be based on rigorous assessments that integrate socioeconomic and environmental objectives at local, regional, and global scales. Further development of environmental indicators, standardized environmental assessments, multi-objective case studies, and globally integrated assessments, along with improved estimations of biofuel production at fine spatial scales, can enhance the identification of more sustainable biofuel production systems. In the short term, several governmental mandates and incentives, along with the development of financial and market-based mechanisms and applied research partnerships, can accelerate the implementation of more sustainable biofuel production alternatives. The set of criteria and strategies developed here can guide decision making towards the identification and adoption of sustainable biofuel production systems.