Biodiesel is gaining more attractive due to its eco-friendly and the fact that it is prepared from renewable sources. It is monoalkyl esters of long chain fatty acids derived from vegetable oils and animal fats via transesterification reaction with alcohol in the presence of catalyst. This paper will review briefly (1) the effect of reaction conditions such as catalyst type, amount of free fatty acid and moisture, molar ratio of alcohol and oil, alcohol type, reaction temperature and time and stirring intesity, (2) downstream process of biodiesel after transesterification reaction, and (3) potentialities of biodiesel as an alternative fuel based on its properties in diesel engines.