Energy policies are taken throughout the world to reduce fossil fuel emissions from transportation sources. Agriculturally based biofuels are currently the only alternatives to liquid fossil fuels. However, as biofuel production spreads, so too do its cascading impacts on environment and food security. This paper analyzes the impact of Mexican ethanol-sugarcane policy on water resources. The water footprint of sugarcane (WFsc) was quantified for an agricultural region in Jalisco, Mexico, and used to estimate anthropologic water demand and stress index. This analysis was performed using historical climate data, and for projected changes under scenarios A2 and B1, using ECHAM and GFDL models. The average historical water footprint of sugarcane was estimated as 104.9 m3/ton, total average water demand as 152.3 Mm3/year and a historical water scarcity index as 59%. Under climate change, the footprint might increase 2% by 2020 and 3–4% by 2050. The available water is predicted to fall 4–7% by 2020, and 6–8% by 2050, with negative effects on water stress. Due to the strong influence of local factors on water footprint and stress, additional research is needed for all Mexican sugarcane regions, in order to evaluate the feasibility of the policy regarding the use of ethanol for transportation.