Aloe vera is a medicinal plant cultivated for various applications in medical, food and health products. During the extraction of aloe vera gel from leaves of this plant, a substantial proportion of Aloe vera waste (AVW) is produced. The AVW is a great environmental concern for its disposal; however, it is rich in various bioactive compounds, which could be valorised as an ingredient of feeds in dairy cattle to reduce enteric methane production and consequently carbon footprint of milk production. Therefore, this study investigated the effects of dietary supplementation of AVW on ruminal fermentation, methane production, nutrient utilization, and milk production performance in lactating cows. First, an in vitro experiment was performed using 0, 10, 20, 30 and 40 g/kg of AVW in substrate (five treatments) to select an optimum dose for feeding of dairy cows. Inclusion of AVW at 20 g/kg substrate decreased methane production, increased feed digestibility and total volatile fatty acid concentration in vitro. In the in vivo study, 16 lactating cows were randomly allotted into control and AVW groups (n = 8/group). The control group was fed a total mixed ration, whereas the AVW group was fed the control ration along with AVW at 20 g/kg of dry matter intake for 90 days. Feed intake was slightly greater in the AVW group than that of the control group. Milk production increased due to feeding of AVW. In vivo nutrient digestibility and concentrations of fat, protein, and lactose in milk were not affected, but yields of these milk components increased due to AVW feeding. Supplementation of AVW significantly decreased methane production (g/day), methane yield (g/kg dry matter intake or g/kg digestible organic matter intake), methane intensity (g/kg milk production) or methane conversion ratio. Feeding of AVW improved delayed type of hypersensitivity without affecting other blood variables adversely. This study demonstrates that feeding of AVW at 20 g/kg dry matter intake to dairy cows increased milk production and decreased methane production, which combinedly decreased methane production per unit of milk production substantially without health effects. Thus, feeding of AVW could be beneficial for sustainable and cleaner milk production decreasing environmental burdens of residue disposal problems and ruminal methane production.