The Renewable Fuels Agency will be responsible for the day to day running of the Renewable Transport Fuels Obligation, coming into force in April next year.
By 2010, the obligation will mean that 5% of all the fuels sold in the UK should come from biofuels, which could save 2.6m to 3m tonnes of carbon dioxide a year.
The chairman of the agency will be Professor Ed Gallagher, former chief executive of the Environment Agency.
Joining Professor Gallagher on the board of the agency are Greg Archer, director of the Low Carbon Vehicle Partnership, Paul Jefferiss, director of environmental policy at BP, Gareth Llewellyn, director for safety, health, environment and corporate responsibility for the National Grid and Brian White, director of a biofuel trading company, BionerG Ltd.
Transport secretary Ruth Kelly said: "The creation of the Renewable Fuels Agency marks a big step forward in creating a strong long-term market for biofuels in the UK.
"I want the agency to make sure the obligation is run efficiently and effectively, but I also want it to take the lead in making sure the biofuels we use in this country come from sustainable sources, saving the most carbon possible."
Professor Gallagher said: "I am very pleased and excited to have been appointed. Climate change is one of the biggest challenges that we face today and I am convinced that biofuels can have an important role in tackling it.
"But it is essential that they are truly sustainable. I am looking forward to working with the oil industry, biofuel companies, environmental groups, motorists and the general public to ensure that biofuels fulfil their potential."