The urgent need for drastic reduction in emissions due to global warming demands a radical energy transition in transportation. The role of biofuels is fundamental to bridging the current situation towards a clean and sustainable future. In passenger cars, the use of ethanol fuel reduces gas emissions (CO2 and other harmful gases), but can bring tribological challenges to the engine. This review addresses the current state-of-the-art on the effects of ethanol fuel on friction, lubrication, and wear in car engines, and identifies knowledge gaps and trends in lubricants for ethanol-fuelled engines. This review shows that ethanol affects friction and wear in many ways, for example, by reducing lubricant viscosity, which on the one hand can reduce shear losses under full film lubrication, but on the other can increase asperity contact under mixed lubrication. Therefore, ethanol can either reduce or increase engine friction depending on the driving conditions, engine temperature, amount of diluted ethanol in the lubricant, lubricant type, etc. Ethanol increases corrosion and affects tribocorrosion, with significant effects on engine wear. Moreover, ethanol strongly interacts with the lubricant’s additives, affecting friction and wear under boundary lubrication conditions. Regarding the anti-wear additive ZDDP, ethanol leads to thinner tribofilms with modified chemical structure, in particular shorter phosphates and increased amount of iron sulphides and oxides, thereby reducing their anti-wear protection. Tribofilms formed from Mo-DTC friction modifier are affected as well, compromising the formation of low-friction MoS2 tribofilms; however, ethanol is beneficial for the tribological behaviour of organic friction modifiers. Although the oil industry has implemented small changes in oil formulation to ensure the proper operation of ethanol-fuelled engines, there is a lack of research aiming to optimize lubricant formulation to maximize ethanol-fuelled engine performance. The findings of this review should shed light towards improved oil formulation as well as on the selection of materials and surface engineering techniques to mitigate the most pressing problems.