AbstractAs the demand for biofuels for transportation is increasing, it is necessary to develop technologies that will allow for low‐cost production of biodiesel. Conventional biodiesel is mainly produced from vegetable oil by chemical transesterification. This production, however, has relatively low land‐yield and is competing for agricultural land that can be used for food production. Therefore, there is an increasing interest in developing microbial fermentation processes for production of biodiesel as this will allow for the use of a wide range of raw‐materials, including sugar cane, corn, and biomass. Production of biodiesel by microbial fermentation can be divided into two different approaches, (1) indirect biodiesel production from oleaginous microbes by in vitro transesterification, and (2) direct biodiesel production from redesigned cell factories. This work reviews both microbial approaches for renewable biodiesel production and evaluates the existing challenges in these two strategies.