Fuel efficiency, is a form of thermal efficiency, meaning the efficiency of a process that converts chemical potential energy contained in a carrier fuel into kinetic energy or work. Overall fuel efficiency may vary per device, which in turn may vary per application, and this spectrum of variance is often illustrated as a continuous energy profile. Non-transportation applications, such as industry, benefit from increased fuel efficiency, especially fossil fuel power plants or industries dealing with combustion, such as ammonia production during the Haber process. The United States Department of Energy and the EPA maintain a Web site with fuel economy information, including testing results and frequently asked questions.

In the context of transportation, "fuel efficiency" more commonly refers to the energy efficiency of a particular vehicle model, where its total output (range, or "mileage" 1) is given as a ratio of range units per a unit amount of input fuel (gasoline, diesel, etc.). This ratio is given in common measures such as "liters per 100 kilometers" (L/100 km) (common in Europe and Canada or "miles per gallon" (mpg) (prevalent in the USA, UK, and often in Canada, using their respective gallon measurements) or "kilometres per litre"(kmpl) (prevalent in Asian countries such as India and Japan). Though the typical output measure is vehicle range, for certain applications output can also be measured in terms of weight per range units (freight) or individual passenger-range (vehicle range / passenger capacity).

This ratio is based on a car's total properties, including its engine properties, its body drag, weight, and rolling resistance, and as such may vary substantially from the profile of the engine alone. While the thermal efficiency of petroleum engines has improved in recent decades, this does not necessarily translate into fuel economy of cars, as people in developed countries tend to buy bigger and heavier cars (i.e. SUVs will get less range per unit fuel than an economy car).

Hybrid vehicle designs use smaller combustion engines as electric generators to produce greater range per unit fuel than directly powering the wheels with an engine would, and (proportionally) less fuel emissions (CO₂ grams) than a conventional (combustion engine) vehicle of similar size and capacity. Energy otherwise wasted in stopping is converted to electricity and stored in batteries which are then used to drive the small electric motors. Torque from these motors is very quickly supplied complementing power from the combustion engine. Fixed cylinder sizes can thus be designed more efficiently.

Energy-efficiency terminology

"Energy efficiency" is similar to fuel efficiency but the input is usually in units of energy such as British thermal units (BTU), megajoules (MJ), gigajoules (GJ), kilocalories (kcal), or kilowatt-hours (kW·h). The inverse of "energy efficiency" is "energy intensity", or the amount of input energy required for a unit of output such as MJ/passenger-km (of passenger transport), BTU/ton-mile (of freight transport, for long/short/metric tons), GJ/t (for steel production), BTU/(kW·h) (for electricity generation), or litres/100 km (of vehicle travel). This last term "litres per 100 km" is also a measure of "fuel economy" where the input is measured by the amount of fuel and the output is measured by the distance travelled. For example: Fuel economy in automobiles.