Ethiopia’s transportation sector is currently dominated by internal combustion engine vehicles running using imported petroleum oil. Due to shortages in hard currency, a rising economy and population growth, and rapid industrialization, energy security to meet the national demand for transport is a quite severe problem. As a result, Ethiopia is strengthening its effort to look for clean alternative energy sources, such as biofuels and electricity. Ethiopia’s biofuel program relies on cane molasses-based ethanol and jatropha based biodiesel for blending into conventional petroleum fuels. In order to investigate the sustainability of Ethiopian biofuel production and use in transportation fuels in terms of their energy balance and environmental impacts, well-to-wheel (WTW) analysis was conducted. The WTW energy saving, greenhouse gas (GHG) emission reduction benefits and criteria air pollutants of blending different commonly used ratios of ethanol with gasoline, biodiesel with diesel and electricity mix (mostly (90%) from hydropower) were analysed in the Ethiopian situation. It is found that both ethanol and biodiesel production has shown net energy gain and reductions in GHG emissions which indicates sustainability and, therefore, could be good substitutes for petroleum fuels if their production pathways are properly managed and implemented. Flexible fuel vehicles (FFVs) fuelled with a blend of 85% ethanol and 15% gasoline (E85) could save 65% fossil fuels and 29% of GHG emission reductions compared to neat gasoline vehicles. Compared to neat diesel vehicles, a blend of 20% biodiesel and 80% diesel (B20) powered vehicles could save 15% fossil energy and could remove 12% of GHG emissions per kilometre driven. Hybrid electric vehicles (HEV) and plug-in hybrid electric vehicles (PHEV) with biofuels (ethanol and biodiesel), gasoline, and diesel showed higher savings of fossil fuel energy and less GHG emissions in every scenario.