Palm Oil Mill Effluent (POME) represents one of the most significant by-products of the palm oil industry, often perceived as a major environmental pollutant due to its high organic load and greenhouse gas (GHG) emissions. However, its valorization as a biogas source offers a promising pathway toward sustainable energy transition in Indonesia. This study presents a systematic literature review (SLR) to evaluate the biogas potential of POME and to explore policy frameworks that support its implementation in the Indonesian context. The review was conducted based on PRISMA guidelines by screening peer-reviewed articles from 2013 to 2024 using databases such as Scopus, ScienceDirect, and Google Scholar. A total of 38 relevant studies were analyzed, covering techno-economic feasibility, conversion efficiency, environmental impacts, and regulatory perspectives. Findings indicate that POME has a high potential for biogas production, with methane yields ranging between 15–28 m³ per m³ of POME under optimized anaerobic digestion processes. Furthermore, several pilot-scale and industrial implementations in Sumatra and Kalimantan demonstrate technical viability. However, challenges remain in terms of infrastructure investment, fragmented policies, and lack of integration with national energy targets. Current regulations, including the Presidential Regulation on Renewable Energy and Ministry of Energy’s roadmap, provide a partial foundation, but clearer incentives and decentralized support mechanisms are needed. This review highlights the urgency of aligning technological potential with comprehensive policy support to accelerate the adoption of POME-to-biogas initiatives, especially among small and medium-scale palm oil mills. The valorization of POME not only contributes to Indonesia’s renewable energy mix but also addresses environmental and socio-economic concerns within the palm oil sector.