Interest in ethanol production is rising rapidly throughout the world as countries strive to address the declining stock of fossil fuels, pollution problems and meet their obligations under the Kyoto protocol. While ethanol provides a clean and green option as a fuel extender, within Australia the debate over the investment in ethanol is still evolving. With declining gross margins in our grains and sugar industries and the case for a renewable transport fuel energy gaining greater acceptance internationally there exists a significant opportunity to consider ethanol as a import replacement option, a value added activity for Australian produce and a significant chance to diversify the economic base of the non-metropolitan regions of Australia. This paper explores the ethanol industry in terms of its ability to provide a real diversification opportunity for the nonmetropolitan regions of Australia. It is argued that there is clear evidence to suggest that, with the right policy framework, potential exists to develop this new industry, build smart and sustainable jobs as well as provide a credible diversification opportunity for the nonmetropolitan regions of Australia.