Recent concerns over rising oil prices and greenhouse gas emissions have sparked an interest for the production of first generation biofuels on marginal agricultural land in Eastern Canada. Field trials were established to compare canola seed oil yield and soil nitrous oxide (N2O) emissions in tree-based intercropping (TBI) and conventional monocropping (CM) systems. The 4–5 year-old TBI system comprised alternating rows of hybrid poplar and high-value hardwood species, with 8 m wide alleys. Each cropping system was planted with six canola cultivars, grown at four fertilizer N rates. Seed oil concentrations decreased linearly with fertilizer N, while seed oil yields increased either linearly or following a quadratic trend. An optimal fertilization rate was estimated at 80 kg N ha−1. Seed oil concentrations were higher in the CM than in the TBI system, but the two systems did not differ significantly in terms of seed oil yield. N2O emissions were three times higher in the CM than in the TBI system, probably as a result of higher soil moisture. The cultivar that produced the highest seed oil yield also produced significantly more N2O, probably as a result of greater available C in the rhizosphere. Our results may be useful to future life cycle assessments for analyzing the net environmental impacts of producing and distributing fertilizer N to biofuel crops, and the choice of cropping system and canola cultivar that minimize N2O emissions. In a first instance, we conclude that our model TBI system did not compromise canola seed oil yields, and substantially reduced soil N2O emissions.