Biodiesel is formed by the reaction of any fat (triglyceride) with methanol usually using a catalyst such as sodium hydroxide NaOH (also called lye, or caustic soda) or potassium hydroxide KOH (also called caustic potash). Ethanol can be used instead of methanol, but the ethanol must be anhydrous (no water), and 100% pure, plus the oil must be free of water. Thus most people use methanol in the reaction. Triglycerides are molecules that have a 3-carbon backbone (glycerin) with 3 fatty acid chains, one attached to each of the carbons in the backbone. Hold out 3 fingers, and your knuckes represent the glycerin backbone, and your fingers are the fatty acid chains. Each fatty acid chain is connected to one of the carbon atoms in the glycerin. When you make biodiesel, first you mix the required amount of lye or KOH with methanol. This produces a reactive molecule called methoxide: CH3O- . The methoxide reacts with the triglyceride, by displacing the glycerol and adding the CH3O- at the end of each fatty acid chain, which become Fatty Acid Methyl Esthers (FAME). Because you are replacing one esther (glyecerol bonded in the triglyceride) for another (FAME), this process is called transesterification. The glycerol (also called glycerin) is the waste product that settles out. Thus 3 molecules of FAME (biodiesel) are produced from every molecule of triglyceride.

In this method, soap is also produced as a side reaction, via the reaction of the sodium or potassium with free fatty acids (FFA). FFA are chains that break off from the triglyceride when the oil is heated as during deep frying. The more the oil is used for frying, the more free FFAs break off, thus making the oil more acidic. The more FFA is present, the more soap will be produced as a side reaction. (In the acid method, sulfuric acid is used in a first step which converts the FFA into FAME. Then a second base-catalyzed step converts the triglycerides into FAME, as above). The amount of FFA present in waste oil is determined using a titration reaction; this tells us how much additional lye or KOH must be added to neutralize the FFA present.