Biomass fuels have become a big concern due to the large increase in green house gases and the rapid rise of petroleum prices around the world. This paper reviews recent developments in biomass fuels,such as ethanol and biodiesel, in China. Ethanol-gasoline mixture (E10) for vehicles is currently distributed in nine provinces while biodiesel is under development. One way to extend the application of ethanol is to burn it in diesel engines to lower soot emissions. The effects of the different methods blending ethanol with fossil diesel, and blending biodiesel with fossil diesel and ethanol-diesel on the combustion and emissions are investigated. The test results show that ethanol and biodiesel can be mixed with fossil diesel to greatly reduce particulate matter and soot emissions from diesel engines. But the application of ethanol blending with fossil diesel is more difficult than that of ethanol blending with gasoline, and biodiesel blending with fossil diesel. The dual-fuel injection of ethanol and diesel systems has the highest smoke reduction effect for a high ethanol fraction.