Activated sludge is the solid or semi-solid produced during biological treatment of industrial and municipal wastewaters. It contains a variety of microorganisms, which utilize the organic and inorganic compounds in the water as a source of energy and nutrients. Water treatment facilities in the United States produced approximately 13 billions pounds (dry basis) of sludge annually. This sludge could be a feedstock for biodiesel production. The literature indicates that sewage sludge contains approximately 20% ether soluble grease and fats, which could be converted into fatty acid methyl esters. Other investigators have extracted sludge using toluene and obtained 18% oil yield. Additionally, the cell wall membrane of microorganisms, the main component of sewage sludge, is mostly composed of phospholipids, which can be converted to biodiesel via acid and based catalyzed transesterification. An alternative method was evaluated to convert sewage sludge into biodiesel. The sludge was converted to free fatty acid via acid hydrolysis. Then, the free fatty acids were extracted with hexane and converted to biodiesel via acid catalyzed transesterification. Gravimetric yields ranged from 1.5% to 15% and analytical yields from 1% to 14%. This paper will describe the potential quantities, quality, and economics of biodiesel generated from sewage sludge. Additionally, the paper will show the effect of several sludge pretreatment techniques and water treatment facility operating conditions on the quality and quantity of biodiesel. The quality of biodiesel was measured using ASTM D 6751 standard methods.