Biofuels in solid, liquid and gaseous forms are all renewable fuels derived either directly or indirectly from plant material. Recently biofuels have emerged as alternative fuel with potential to replace finite fossil fuels resources. In Tanzania liquid biofuel (biodiesel and bioethanol) developments are at an infancy stage and there is so far no commercial liquid biofuel production. Nevertheless, such biofuel activities in Tanzania show that being part of the world is not left behind for the promotion of biofuels as an alternative source of energy. To that effect the objective of this review article was to understand the key issues pertaining to liquid biofuels and their status as well as to highlight gaps and strategies to address the gaps in Tanzania. Therefore this study is based on reviewing pertinent literature relating to liquid biofuels in Tanzania and elsewhere. The study looked at policies and strategies in place, mode of production of biofuels feedstock’s, players in biofuels and their roles, value chain, social-economic and environmental issues of biofuels, land tenure issues and food security, sustainability, research and development. Information generated in this article revealed that policy, foreign influence, economics, environmental and political factors are main drivers for biofuel industry. It was also evident that in Tanzania biofuels could provide some opportunities for national consumption or for export and offer some genuine development opportunities. However, clear policies, strategies as well as regulations for biofuels development are still not in place. One important and immediate activity needed is for Tanzania’s government and stakeholders to fast tracking the establishment of national biofuel policy to ensure sustainability of the biofuels industry. In conclusion, Tanzania has comparative advantages in the production of biofuels. However management of the potential negative effects of the biofuel industry to ensure that benefits outweigh any ecological, economic and/or social costs should to be taken into account and given utmost priority.