A number of factors affecting the methanolysis of vegetable oils in aqueous medium by Cryptococcus spp. S-2 lipase were investigated. The crude lipase from the yeast efficiently catalyzed the methanolysis of vegetable oils (oil/methanol molar ratio of 1:1) in the presence of 40 wt.% water. The methyl ester content was high with rice bran oil at 30 degreesC for 96 h and further optimization studies were carried out with varying amount of enzyme, water or methanol. The enzyme was not inactivated by shaking in a mixture containing 4 Meq of methanol against the oil and 100 wt.% water by weight of the substrate and the methyl ester contents increased with increasing molar equivalents of methanol and water contents from 60 to 100 wt.%. The optimal methanolysis conditions were an oil/methanol molar ratio of 1:4, a water content of 80 wt.% by weight of the substrate containing 2000 U of crude lipase with shaking at 160 rpm for 120 h at 30 degreesC. Thus, the reaction was conducted in a single step to avoid the stepwise addition of methanol and the methyl ester contents reached 80.2 wt.% at 120 h. These same conditions were applied for alcoholysis of rice bran oil and primary alcohols to their respective alkyl ester derivatives which are excellent substitutes for diesel fuel.