Fatty acid methyl ester (biodiesel) has been derived from oil present in algae through transesterification using catalysts of acids, base, supercritical fluids, etc. These catalysts are corrosive and have been posing challenges of contaminating the environment necessitating environmentally friendly and biodegradable catalysts such as enzyme (lipase) based biocatalysts. In this study, fungal strains (endophytic/free spores) were isolated from an estuarine ecosystem and screened for extracellular lipase activities. A novel fungal strain Cladosporium tenuissimum, identified through molecular technique exhibited higher lipolytic activity among the isolates. The crude lipase extracted from fungus was subjected to ammonium sulphate precipitation and purification using Superdex 200 gel filtration chromatographic system. The molecular weight of purified lipase was found to be similar to 46 KDa and a specific activity of 37.2 U/mg. Lipase activities attained stability and reached maximum at 60 degrees C temperature and pH of 6. The purified enzyme was used as a biological catalyst for enzymatic transesterification of oil obtained from an indigenously isolated salt tolerant diatom Nitzschia punctata. Spectroscopic analysis on fatty acids and Fatty Acid Methyl Esters derived from diatom exhibited similarities in specific functional groups between algal oil and biodiesel. Comparisons on biodiesel yield estimation and FAME compositions of enzyme catalyzed, acid catalyzed biodiesel assessed through gas chromatographic techniques revealed a higher efficiency (87.2 +/- 0.47%) of biocatalysts compared to conventional acid catalyst (83.02 +/- 0.35%) exhibiting potential scope for large scale application of environment friendly biocatalysts to enhance the conversion performances of the transesterification process. (C) 2020 Elsevier Ltd. All rights reserved.