The earliest research on vegetable oils dates back to 1930s, but no proper method was found to refine vegetable oil with properties suitable for the petroleum diesel engine. In year 1937 the process of transesterification was proposed to convert vegetable oil to fatty acid alkyl esters, the chemical name for biodiesel. This biodiesel fuel was later found to easily replace the petroleum diesel in the modern day diesel engines. In early 1980s the concerns for environment grew due to air-pollution caused by petroleum fuels and then there was also over production of agricultural products. These factors lead to greater interest in vegetable oil and its market was established towards the end of 1980s especially in Europe.
Lots of research has been carried out on biodiesel in the early 1990s in South Africa and Europe. US entered late in foray due to cheap and abundantly available petroleum fuels. One of the first companies to start production of biodiesel in US is Pacifica Biodiesel that started the operations in the year 1996. After the terrorists attacks in the year 2001, the there was more awareness of high oil prices and energy security in US, which led to biodiesel becoming the household name in US.
Most of the biodiesel production is still carried out in European Union. However, due to increasing oil prices and the pollution caused by it, a number of biodiesel plants are coming up in other parts of the world also.