A 39-day field experiment was conducted to assess the effect of grape marc (GM) feeding on sheep productivity, health, and environmental sustainability. Forty merino sheep were divided into two dietary groups, each having five replications (n = 4 sheep/replication). Experimental diet consisted of: (i) control: 55% lucerne hay + 40% wheat grain + 5% faba bean; (ii) GM treatment: control diet with 20% replaced by GM on a dry matter (DM) basis. The GM treatment contained 2–10% higher phytochemical contents than the control. The DMI from the GM treatment was 15% higher than the control (p < 0.001). No difference was found in sheep live weight gain, behaviour, and quality between groups (p > 0.05). No difference was found in total faecal production, faecal organic matter, and nitrogen contents (p > 0.05) and parasitic egg count. The GM treatment led to higher nitrogen intake (23.1 vs. 27.2 g/d) and faecal nitrogen excretion (6.3 vs. 8.7 g/d) compared to the control. Urinary creatinine, allantoin, and purine derivatives were lower in the GM treatment than control (p < 0.05). However, both groups had similar purine derivatives/DMI (i.e., indicator of rumen microbial protein synthesis efficiency; p > 0.05). Overall, the results showed that GM can replace 20% of the control ration to maintain sheep productivity, health, and environmental sustainability.