The olive oil industry plays a crucial role in Mediterranean economies but faces significant environmental challenges due to resource-intensive agricultural practices and waste generation. This study applies Circular Economy (CE) principles to Extra Virgin Olive Oil production, comparing a linear production model, where by-products are discarded, with a circular approach, where vegetation water is reused as a fertiliser. A Life Cycle Assessment was conducted to evaluate the environmental impacts of both scenarios, focusing on nine key impact categories. The results indicate that the agricultural phase is the main contributor to environmental burdens, particularly due to the use of synthetic fertilisers and agricultural operations. However, the circular approach led to notable impact reductions, especially in Global Warming, Marine Eutrophication, Terrestrial Ecotoxicity, and Fossil Resource Scarcity. These findings highlight the potential of circular strategies to enhance sustainability in the olive oil sector, aligning with EU climate and agricultural policies. Beyond environmental benefits, CE implementation could reduce waste management costs, increase resource efficiency, and improve the sector’s overall resilience. Future research should explore the long-term agronomic implications and scalability of these practices across different olive-growing regions.