This is a Smart, modified to run on biodiesel, and it gets well over 60 mpg.
Here's the engine:
That's a tiny engine, small and light enough to lift. It's direct injection, turbocharged, charge air cooled 799-cc 3-cylinder common rail diesel with 40 hp and 74 lb-ft of torque. Not much, true, but then the car only weighs 1,600 pounds. That with a six speed automatic that has a sequential mode, and it's actually pretty peppy (I've driven one), especially compared to some hybrids.
This is a Smart, modified to run on biodiesel, and it gets well over 60 mpg I certainly believe a small turbocharged diesel is the way to go near term. A four cylinder diesel could easily carry a car the size of the Prius. If you need higher performance, you can add injected propane or nitrous to the fuel with water injection and inner cooler.