Fatty acid methyl esters (FAME) are produced by transesterification of fats or oils (triglycerides) with methanol. Palm oil methyl esters (PME) are similar to FAME.
This reaction can be catalyzed acidic or alkaline, depending on the feedstock properties. The trivalent alcohol glycerine is exchanged for methanol. Glycerine and FAME are formed as reaction products, whereby, when using natural fats, a mixture of different fatty acid methyl esters with an even number of carbon atoms is obtained, since natural triglycerides generally contain several different fatty acid residues.
More generally expressed, Biodiesel production is the process of producing the biofuel, biodiesel, through the chemical reactions of transesterification and esterification. This involves vegetable (or animal fats) and oils being reacted with short-chain alcohols (typically methanol or ethanol). The alcohols used should be of low molecular weight. Ethanol is frequently used because of its low cost, however, greater conversions into biodiesel can be reached using methanol.
Although the transesterification reaction can be catalyzed by either acids or bases, the base-catalyzed reaction is more common. This path has lower reaction times and catalyst cost than those using acid catalysis. However, alkaline catalysis has the disadvantage of high sensitivity to both water and free fatty acids present in the oils.

In order to shift the equilibrium of the transesterification reaction to the side of the products, i.e. to the side of the fatty acid methyl esters, glycerine can be removed or alcohol (methanol) can be added in excess.

Another variant in the food industry, is specific enzymatic transesterification using special 1,3-lipases. This specificity is not possible chemically and so this enzymatic route can be used for the production of cocoa butter substitute, margarine, butter and baking fats.