Industrial biotechnology heavily relies on the microbial conversion of carbohydrate substrates derived from sugar- or starch-rich crops. This dependency poses significant challenges in the face of a rising population and food scarcity. Consequently, exploring renewable, non-competing carbon sources for sustainable bioprocessing becomes increasingly important. Ethanol, a key C2 feedstock, presents a promising alternative, especially for producing acetyl-CoA derivatives. In this review, we offer an in-depth analysis of ethanol's potential as an alternative carbon source, summarizing its distinctive characteristics when utilized by microbes, microbial ethanol metabolism pathway, and microbial responses and tolerance mechanisms to ethanol stress. We provide an update on recent progress in ethanol-based biomanufacturing and ethanol biosynthesis, discuss current challenges, and outline potential research directions to guide future advancements in this field. The insights presented here could serve as valuable theoretical support for researchers and industry professionals seeking to harness ethanol's potential for the production of high-value products.