Biomass-based biofuels have gained attention because they are renewable energy sources that could facilitate energy independence and improve rural economic development. As biomass supply and biofuel demand areas are generally not geographically contiguous, the design of an efficient and effective biomass supply chain from biomass provision to biofuel distribution is critical to facilitate large-scale biofuel development. This study compared the costs of supplying biomass using three alternative biomass preprocessing and densification technologies (pelletizing, briquetting, and grinding) and two alternative transportation modes (trucking and rail) for the design of a four-stage biomass–biofuel supply chain in which biomass produced in Illinois is used to meet biofuel demands in either California or Illinois. The BioScope optimization model was applied to evaluate a four-stage biomass–biofuel supply chain that includes biomass supply, centralized storage and preprocessing (CSP), biorefinery, and ethanol distribution. We examined the cost of 15 scenarios that included a combination of three biomass preprocessing technologies and five supply chain configurations. The findings suggested that the transportation costs for biomass would generally follow the pattern of coal transportation. Converting biomass to ethanol locally and shipping ethanol over long distances is most economical, similar to the existing grain-based biofuel system. For the Illinois–California supply chain, moving ethanol is $0.24 gal−1 less costly than moving biomass even in densified form over long distances. The use of biomass pellets leads to lower overall costs of biofuel production for long-distance transportation but to higher costs if used for short-distance movement due to its high capital and processing costs. Supported by the supply chain optimization modeling, the cellulosic-ethanol production and distribution costs of using Illinois feedstock to meet California demand are $0.08 gal−1 higher than that for meeting local Illinois demand.