•We investigate the dynamic relationships among tourism, economic growth and CO2 emissions.•A panel data of Eastern and Western European Union countries are examined.•We establish long-run equilibrium relationship among economic growth, CO2 emissions, tourism, FDI and trade.•Results from long-run elasticities suggest that tourism stimulates economic growth in Eastern and Western EU countries.•Tourism increases CO2 emissions in Eastern EU but decreases in Western EU. The purpose of this paper is to investigate the effect of tourism on economic growth and carbon dioxide emissions in Eastern and Western European Union (EU) countries by incorporating FDI and trade in the production and CO2 emission functions. We apply panel econometric techniques which account for cross-sectional dependence and heterogeneity. The results of Westerlund panel cointegration test confirm a long-run equilibrium relationship among the variables. Results from long-run elasticities suggest that tourism stimulates economic growth in Eastern and Western EU countries. However, tourism increases CO2 emissions in Eastern EU but decreases in Western EU. This indicates that tourism has an adverse effect on the environment in Eastern EU. Finally, short-run heterogeneous panel causality test results suggest that tourism causes CO2 emissions in Eastern EU while economic growth and CO2 emissions cause tourism in Western EU. Overall, our findings suggest that tourism plays an important role in accelerating economic growth; however, its role on CO2 emissions largely depends on the adaptation of sustainable tourism policies and efficient management.