Crop residues and energy crops grown on marginal lands can be sources of advanced bioethanol without interfering with agricultural land for food, and can replace traditional fuels with a neutral carbon cycle, but demand additional water for crop growth and energy production. However, existing bioethanol potential assessments ignore the constraints of limited water resources. Here we quantify the bioethanol potential from twelve crops’ residues and two energy crops (sweet sorghum and cassava) grown on marginal lands under both water and land constraints in China, based on bioethanol water footprint accounting, local water scarcity degree and marginal land identification. Results show that the bioethanol potential from crop residues is up to 68.5 Mt (∼1.8 EJ calorific value), approximately 49% lower than the theoretical potential without considering water limits. The suitable bioethanol potentials from sweet sorghum and cassava are in ranges 18.7–32.7 Mt (∼0.5–0.9 EJ) and 14.0–52.4 Mt (∼0.4–1.4 EJ), respectively. Northeast China are more suitable for the development of bioethanol due to their greater productive potential and lower water scarcity, whereas South and Southwest China have advantages in terms of growing energy crops on marginal lands and should be the focus of additional attention.