This paper reviews the development of oil palm with linkages to biofuel in Indonesia and analyzes the associated environmental and socioeconomic impacts. We selected three plantation study sites in West Papua (Manokwari), West Kalimantan (Kubu Raya), and Papua (Boven Digoel) to assess the impacts. Research findings indicate that the development of oil palm in all three sites has caused deforestation, resulting in significant secondary external impacts such as water pollution, soil erosion, and air pollution. In terms of social impacts, many stakeholder groups, i.e., employees, out-growers, and investing households, report significant gains. However, we found these benefits were not evenly distributed. Other stakeholders, particularly traditional landowners, experienced restrictions on traditional land use rights and land losses. We observed increasing land scarcity, rising land prices, and conflicts over land in all sites. Three major trade-offs are associated with the development of oil palm plantations, including those related to biofuels: unevenly distributed economic benefits are generated at the cost of significant environmental losses; there are some winners but also many losers; and economic gains accrue at the expense of weak rule of law. To reduce the negative impacts and trade-offs of oil palm plantations and maximize their economic potential, government decision makers need to restrict the use of forested land for plantation development, enforce existing regulations on concession allocation and environmental management, improve monitoring of labor practices, recognize traditional land use rights, and make land transfer agreements involving customary land more transparent and legally binding.