Recently, the importance of biocatalysis in bioenergy has been noted, with policymakers and regulatory authorities intervening at the technological level to establish more efficient, varied, and vast-scale exploitations of biocatalysis. These approaches leverage natural catalysts, primarily enzymes, to facilitate the breakdown of larger organic compounds into simpler molecules, which can be further biochemically transformed into biofuels, such as ethanol, biodiesel, and biogas, using improved versions of metabolic enzymes. Advances in enzyme engineering have significantly enhanced the stability, specificity, and activity of key enzymes involved in biofuel synthesis, such as cellulases, oxidoreductases, xylanases, glucose isomerases, butanol dehydrogenase, acetoacetate decarboxylase, ferredoxin oxidoreductases, etc. Further, synthetic biological approaches have allowed the construction of microbial cell factories with restructured integrated biocatalytic pathways, capable of converting the raw biomass directly into biofuels. Despite these advancements, challenges remain, such as the cost of enzymes, their robustness, and the scalability of their production and biotransformation processes. Ongoing research is focused on overcoming these hurdles through innovative biocatalyst design, metabolic engineering, in silico modeling, and optimization. However, changes in government policies and reduced regulatory frameworks are expected to leverage biofuel production and competitiveness with fossil fuels and gradually replace them completely. This review highlights the recent advances in the field of biocatalysis related to the production of biofuels. This review also discusses the current challenges, sustainability, promotional initiatives performed at the government level, and future directions in the field of biofuels.