ABSTRACT This study introduces an innovative biorefinery approach for sustainably regenerating transformer oil utilizing a composite adsorbent comprised of Chitosan (CS) and Sepiolite (SL). Surface modification analyses, employing BET, SEM, and FTIR techniques, unveiled enhanced adsorption capabilities attributed to pores and folds on the CS-SL composite surface, coupled with uniform SL distribution within the CS substrate. Through systematic evaluations based on color index and transmittance assessments across multiple samples, optimal regeneration was achieved with a 5% volume fraction of the composite absorbent, closely replicating fresh oil properties. Significant improvements were observed in acidity (−62.50%), moisture content (−44.44%), and viscosity (−27.93%), with slight changes in density and a notable rise in flash point (+31.82°C). Electrical properties showed enhancement, with breakdown voltage (+80.00%) and resistivity (+54.93%) increasing, while dissipation factor (−98.00%) and permittivity (−44.74%) decreased, indicating improved energy efficiency. Gas chromatography-mass spectrometry confirmed the removal of oxidation by-products. This study underscores the potential of CS-SL as a sustainable adsorbent for transformer oil regeneration, thereby making significant strides toward environmental sustainability within the framework of Sustainable Development Goals (SDGs) and the principles of biorefinery practices.