Due to the concern on the availability of recoverable fossil fuel reserves and the environmental problems caused by the use those fossil fuels, considerable attention has been given to biodiesel production as an alternative to petrodiesel. Biodiesel is an ecofriendly, alternative diesel fuel prepared from domestic renewable resources i.e. produced from vegetable oils and animal fats. It is a renewable source of energy seems to be an ideal solution for global energy demands including India as well. The general way to produce biodiesel fuel is by transesterification of vegetable oil with methanol in the presence of either alkaline or strong acid catalysts. Transesterification reaction is quite sensitive to various parameters. An ideal transesterification reaction differs on the basis of variables such as fatty acid composition and the free fatty acid content of the oil. Other variables include reaction temperature, ratio of alcohol to vegetable oil, catalyst, mixing intensity, purity of reactants. This review paper describes the chemical composition of vegetable oils, fuel properties vegetable oils and biodiesel, transesterification process, the most important variables that influence the transesterification reaction, environmental consideration and economic feasibility of biodiesel.