Bioenergy is currently regarded as a renewable energy source with a high growth potential. Forest-based biodiesel, with the significant advantage of not competing with grain production on cultivated land, has been considered as a promising substitute for diesel fuel by many countries, including China. Consequently, extracting biodiesel from <em>Jatropha</em><em> curcas</em> has become a growing industry. However, many key issues related to the development of this industry are still not fully resolved and the prospects for this industry are complicated. The aim of this paper is to evaluate the net energy, CO₂ emission, and cost efficiency of <em>Jatropha</em> biodiesel as a substitute fuel in China to help resolve some of the key issues by studying data from this region of China that is well suited to growing <em>Jatropha</em>. Our results show that: (1) <em>Jatropha</em> biodiesel is preferable for global warming mitigation over diesel fuel in terms of the carbon sink during <em>Jatropha</em> tree growth. (2) The net energy yield of <em>Jatropha</em> biodiesel is much lower than that of fossil fuel, induced by the high energy consumption during <em>Jatropha</em> plantation establishment and the conversion from seed oil to diesel fuel step. Therefore, the energy efficiencies of the production of <em>Jatropha</em> and its conversion to biodiesel need to be improved. (3) Due to current low profit and high risk in the study area, farmers have little incentive to continue or increase <em>Jatropha</em> production. (4) It is necessary to provide more subsidies and preferential policies for <em>Jatropha</em> plantations if this industry is to grow. It is also necessary for local government to set realistic objectives and make rational plans to choose proper sites for <em>Jatropha</em> biodiesel development and the work reported here should assist that effort. Future research focused on breading high-yield varieties, development of efficient field management systems, and detailed studies lifecycle environmental impacts analysis is required to promote biologically and economically sustainable development of <em>Jatropha</em> biodiesel and to assist government agencies in setting realistic objectives and appropriate and advantageous policies for the regions and the country.