Limited quantities of oil have become an important factor toward a more intensive search and use of alternative fuels. Biodiesel is used in diesel engines, and is manufactured from vegetable oils, animal fats and recycled cooking oils. With significant economic, commercial and strategic interests of production, the production and use of biodiesel is particularly important from an environmental point of view. Also, favourable conditions for the production of rapeseed in Croatia are of great importance in the production of biodiesel and reducing its imports. This paper provides an overview of basic features of biodiesel fuel, benefits and production capabilities in the Republic of Croatia as well as the impact of biodiesel on the environment.