The under-sieve fraction (USF), obtained as one of the output streams from the mechanical pretreatment of mixed municipal solid waste, is usually aerobically biologically stabilized before being landfilled. For its characteristics (i.e., moisture and organic content), the USF can be alternatively processed by hydrothermal carbonization (HTC), producing hydrochar to be used for energy production. Based on previous results obtained from laboratory HTC tests of the USF, this work is aimed at evaluating the sustainability of the proposed process from an environmental point of view by applying the Life Cycle Assessment. Various combinations of process parameters (temperature, time, and dry solid-to-water ratios) and two different utilization pathways for hydrochar (the whole amount produced in external lignite power plants or part of it used internally) are compared. The results indicate that environmental performances are mainly connected with process energy consumption: in general, the cases operating at the lowest dilution ratio and the highest temperature provide improved environmental indicators. Co-combusting all the produced hydrochar in external power plants provides better environmental performances than feeding a portion of it to the HTC itself: the avoided effects by displacing lignite are higher than the additional burdens from natural gas use. Then, alternative process water treatments are compared, showing that the burdens added by the process water treatments do not offset the benefits generated by the main HTC process for the major part of the considered environmental indicators. Finally, the proposed process indicates better environmental performances when compared to the conventional method of treating the USF, based on aerobic biostabilization and landfilling.