Grassland biomass is suitable in numerous ways for producing energy. It is well established as feedstock for biogas production. The aim of this review is to summarize current knowledge on suitability and sustainability of grassland biomass for anaerobic digestion. In the first section grassland management for biogas feedstock as well as specifics of harvest, postharvest and digestion technology are described. Methane yields from grass are influenced by many factors. While the effects of some parameters such as grass species, cutting period and management intensity can be regarded as well known, other parameters such as preservation and processing still need investigation. In the second section economic aspects and environmental impacts are discussed. Profitability can be achieved depending on grass silage supply costs and the concept of anaerobic digestion and energy use. Grassland biomass for biogas production competes with other feedstock and other forms of grassland use, in particular animal husbandry. In developed countries a growing production of milk and meat is achieved with decreasing ruminant numbers, resulting in an increasing amount of surplus grassland with a remarkable bioenergy potential. In emerging and developing countries a rapidly rising demand for and production of milk and meat induce growing pressure on grasslands, so that their use for animal feed presumably will take priority over use for bioenergy. Grasslands provide a variety of essential environmental benefits such as carbon storage, habitat function, preservation of ground and surface water quality. When producing biogas from grassland these benefits will remain or even grow, providing appropriate grassland management is implemented. In particular, greenhouse gas emissions can be considerably reduced.