Countries all over the world are racing to attract as much foreign direct investment (FDI) as possible due to its crucial impact on the economic development projects in the hosting countries. If these countries could well choose their economic projects and foreign partners, FDI could fill up the gap of limited resources and possibilities, increase the investment base, and help making the best use of the available natural resources for the hosting countries. Furthermore, FDI is an effective tool to transfer and use new technologies, as well as create new jobs in the hosting countries. Petroleum sector is one of the most important investing sectors with its huge directed investment whether for searching, exploring or extracting processes. Moreover, petroleum has a significant impact on the environment, as it emits contaminated waste while being produced. Thus, extracting petrol is an expensive process and -in some cases- harmful to the environment. The current research aims to study the impact of FDI in petroleum sector on the environment and to study the advantages and disadvantages of FDI in petroleum sector. To achieve that, analytical method based on the extrapolation method was used through gathering and analyzing the required data. Data was collected from CAPMAS (Central Agency for Public Mobilization and Statistics) and reports of the Central Bank of Egypt during the period of 2008 and 2016. The collected data was statistically analyzed through “SPSS" software. Results show that FDI in petroleum sector has a significant impact on the environment due to the harmful emissions resulted from searching, exploring and extracting processes; protecting the environment leads to huge cost as petrol production has the highest portion of the total FDI comparing with other sectors. Furthermore, this cost increases as FDI increases in spite of the exerted efforts. Researchers recommend to do more efforts in the petroleum sector to reduce the pollution resulted from FDI, spend more money on researches and development processes as well as use modern technologies that reduce the emissions of petroleum sector production.