There is a strong societal need to evaluate and understand the sustainability of biofuels, especially because of the significant increases in production mandated by many countries, including the United States. Sustainability will be a strong factor in the regulatory environment and investments in biofuels. Biomass feedstock production is an important contributor to environmental, social, and economic impacts from biofuels. This study presents a systems approach where the agricultural, energy, and environmental sectors are considered as components of a single system, and environmental liabilities are used as recoverable resources for biomass feedstock production. We focus on efficient use of land and water resources. We conducted a spatial analysis evaluating marginal land and degraded water resources to improve feedstock productivity with concomitant environmental restoration for the state of Nebraska. Results indicate that utilizing marginal land resources such as riparian and roadway buffer strips, brownfield sites, and marginal agricultural land could produce enough feedstocks to meet a maximum of 22% of the energy requirements of the state compared to the current supply of 2%. Degraded water resources such as nitrate-contaminated groundwater and wastewater were evaluated as sources of nutrients and water to improve feedstock productivity. Spatial overlap between degraded water and marginal land resources was found to be as high as 96% and could maintain sustainable feedstock production on marginal lands. Other benefits of implementing this strategy include feedstock intensification to decrease biomass transportation costs, restoration of contaminated water resources, and mitigation of greenhouse gas emissions.