Purpose: The olive oil sector in Italy has a significant socio-economic, environmental, and cultural relevance. However, the environmental impacts of production and consumption models are considerable, mainly due to the demand for large quantities of resources (fuels, chemicals) and to the environmental impacts of residues’ disposal. Due to the scarcity of resources and climate change concerns, circular economy principles based on industrial ecology concepts are emerging. In this paper, the principles of circular economy were specifically applied to the olive oil supply chain, to improve the environmental sustainability of the sector. Methods: The production chain of extra virgin olive oil was analyzed using the Life Cycle Assessment method, based on primary data from an oil farm and mill in Southern Italy. The environmental impacts were evaluated through the SimaPro software and the ReCiPe 2016 Mid-point (H) Impact Assessment Method, with reference to the functional unit of 1-L bottle of extra virgin olive oil. Some circular improvement options were investigated, comparing the impacts generated by (i) extra virgin olive oil linear production without valorization of by-products, (ii) extra virgin olive oil linear production with allocation of total impacts to co-products, and (iii) two circular production systems, incorporating improvements such as replacement of diesel with biodiesel and of electricity from the national grid with energy recovered from residues. Results and discussion: The environmental impacts of the business-as-usual production pattern were identified for possible improvements. In all phases of the production chain of organic extra virgin olive oil, the most affected impact categories were human carcinogenic toxicity, marine ecotoxicity, and terrestrial ecotoxicity. As expected, the major contributions to almost all the analyzed impact categories were determined by the agricultural phase (92.65%), followed by the bottling phase (7.13%) and the oil extraction phase (0.22%). The valorization of by-products was considered by widening the system boundaries to ensure the environmental sustainability by developing circular patterns that feedback waste materials to upstream steps of the same process. The environmental impacts resulted lower in almost all the impact categories, with the major benefits gained in the global warming and fossil depletion impact categories. Conclusions: The analysis proved that the reuse of pomace, prunings, and exhausted cooking oil initially considered as waste can bring benefits from an environmental point of view to the larger scale of the economy, by replacing fossil fuels, as well as to the olive oil chain itself, by providing the needed energy for production.