Global development of the biofuel sector is proceeding rapidly, driven by national policy mandates, government subsidies, and profit opportunities for farmers, agribusiness and energy companies. To date, most investment in - and dialogue on - biofuels has focused on large-scale production of liquid transport fuels. A smaller set of efforts has explored the potential of biofuels to promote rural development by reducing energy poverty among the world's two billion poorest people. Here, we consider the potential of these diverse approaches to promote the goals of ecoagriculture: namely, sustainable agricultural production (including biofuel feedstocks), conservation of biodiversity and ecosystem services and viable rural livelihoods. Using a landscape planning framework, we review empirical evidence and identify criteria for designing biofuel production systems that promote this trio of goals. Biofuel development has the greatest potential when biomass production is an `interstitial' activity and when processing and use occurs at the local level. Larger scale production for regional or global liquid fuel markets may be beneficial under some circumstances, but a stronger policy framework is needed to guide this approach. To advance biofuels for sustainable development, while avoiding serious risks, investment must shift to include a variety of ecoagriculture-compatible pathways. Supportive public policies and market incentives must be developed before the biofuel sector develops strong path-dependence toward unsustainable outcomes.