The urgent need for sustainable energy solutions and environmental monitoring necessitates innovative approaches to biomass utilization. This study explores unlocking the potential of rice husk pyrolysis oil for dual applications: producing high-energy solid fuel and environmentally sensitive carbon nanodots (B-CDs). Slow pyrolysis of rice husk oil, followed by atmospheric distillation, transforms the oil into bio-coal with a high calorific value of 29.85 MJ/kg, significant aliphatic and aromatic carbon content, lowest ash content, and abundant oxygen functional groups, making it a viable fossil fuel alternative. Further, oxidative crystalline cutting and surface modification of this bio-coal yield B-CDs that exhibit blue fluorescence with a quantum yield of 41 %, an average size of 3.4 nm, and excellent photostability and hydrophilicity. Notably, these B-CDs are self-doped with nitrogen on their surface, enhancing their functionality. They demonstrate high sensitivity for Fe²⁺ detection, with a limit of detection (LOD) of 0.34 μM over a linear range of 0–100 μM, and a strong response to alkaline conditions. Validation experiments in tap and seawater samples confirmed the practical environmental applications of B-CDs. This study not only contributes to the advancement of pyrolysis oil as a source of fuel energy but also emphasizes the production of valuable carbon nanomaterials for environmental application.