Biodiesel is a renewable fuel that can be produced from vegetable oils, animal fats, and used cooking oil including triglycerides. Biodiesel, an alternative biodegradable diesel fuel, is derived from triglycerides by transesterification with methanol and ethanol. Concerns about the depletion of diesel fuel reserves and the pollution caused by continuously increasing energy demands make biodiesel an attractive alternative motor fuel for compression ignition engines. There are four different ways of modifying vegetable oils and fats to use them as diesel fuel, such as pyrolysis ( thermal cracking), dilution with hydrocarbons ( blending), emulsification and transesterification. The most commonly used process is transesterification of vegetable oils and animal fats. The transesterification reaction is affected by molar ratio of glycerides to alcohol, catalysts, reaction temperature, reaction time and free fatty acids and water content of oils or fats. In the transesterification, free fatty acids and water always produce negative effects, since the presence of free fatty acids and water causes soap formation, consumes catalyst and reduces catalyst effectiveness, all of which result in a low conversion. Biodiesel has over double the price of diesel. The high price of biodiesel is in large part due to the high price of the feedstock.