Energy consumption from transport has been increasing at a fast rate and become a major sector, which takes 29% of total global energy demand. Since transport energy consumption primarily relies on fossil fuels, it has resulted in serious carbon emissions and environmental degradation. Moreover, the volatility prices of fossil fuel and unstable international security have attracted keen interest for many developing and industrialized countries looking for sustainable and clean alternatives. Liquid biofuels, including but not limited to bioethanol, biodiesel, bio-jet fuel, are considered as the most promising alternative and more expansive role in powering sustainable transport, for its carbon neutral and low-emissions properties. Liquid biofuels contribute 4% of transport in 2020 and have been foreseen to continuously grow. Liquid biofuels can be produced by diverse technologies and commercialized in various ways, easy-adapt to technical and policy challenges. Major challenges include technical bottleneck, initial and operational cost, byproduct treatment, and associated environmental concern. This paper critically reviews: (1) Categories and production of different liquid biofuels; (2) Application scenarios of liquid biofuels; (3) Environmental impact assessment of liquid biofuels; (4) Opportunities and challenges of liquid biofuels; (5) Future perspectives. Each type of liquid biofuel requires specific production processes and has a strong correlation with biomass raw materials. Liquid biofuels find extensive applications in transportation, aviation, and other functional domains. In addition, the life cycle assessment of liquid biofuels is carried out from the numerous aspects of raw materials, pretreatment, production process, and application. Furthermore, this study analyzes the related policies, highlighting the challenges associated with the unstable supply of clean energy, raw materials, and quality control. Finally, the future perspectives of liquid biofuels were presented. This comprehensive review aims to provide a systematic understanding of liquid biofuels, covering their production and applications from multiple perspectives, while offering insights into future developments.