Biodiesel refers to a diesel-equivalent processed fuel. Technically, biodiesel consists of short-chain alkyl (methyl or ethyl) esters, derived from the transesterification of vegetable oils or animal fats, and it can be used in unmodified diesel engines, either alone (referred to as B100) or blended with petroleum diesel (for example, B20 or B5).

Biodiesel is an economically viable and environmentally sustainable option to non-renewable fossil fuel, particularly with ever growing energy demand and higher prices of crude oil. This, in addition to concerns on energy security and continued technological improvements are propelling many governments to enact powerful incentives for the production and use of renewable alternatives. In the United States, biodiesel is the only alternative fuel to have successfully completed the Health Effects Testing requirements (Tier I and Tier II) of the Clean Air Act (1990).

Biodiesel is biodegradable and non-toxic, and typically produces about 70-85% fewer net-lifecycle carbon dioxide emissions, as it is itself produced from atmospheric carbon dioxide via photosynthesis in plants. Biodiesel's emissions of smog forming hydrocarbon are about 65% lower, depending on the crop used. The most recent study by the U.S. Department of Agriculture estimates that the energy balance of biodiesel is 3.5 to 1. That is, for every unit of fossil energy needed to produce the fuel over its life cycle, the return is 3.5 units of energy. This compares very favourably to ethanol, which has been estimated to have an energy balance of less than 1.5 to 1. For Jatropha, a low-input crop, the reduction in emissions is estimated to be well in excess of 80% and the energy balance is also estimated to be higher than 3.5 to 1.

Vehicle manufacturers certify the use of biodiesel as an additive, with many models already certified for the use of B100 (100% biodiesel). Biodiesel is a better solvent than standard diesel, as it 'cleans' the engine, removing deposits in the fuel lines, and Volkswagen has found that biodiesel actually reduces engine wear. Most manufacturers release lists of the cars that will run on 100% biodiesel, and many service stations across Europe have made B100 readily available to consumers. Among vehicle manufacturers that certify the use of higher content of biodiesel, Scania and Volkswagen explicitly allow most of their engines to operate on B100, Peugeot and Citroën recently announced that their PSA HDi engine can run on B-30 biodiesel, and Ford has recently confirmed that the Ford Focus engine has been tested to run on B100 biodiesel.

While progress has been relatively slower for North American and UK-based vehicle manufacturers, regulated (government) fleets across the US and Canada are adopting use of bio-diesel. Thus, almost all US Federal Agencies with a diesel fleet use biodiesel (including the Marine Corps, Air Force, Postal Service, Dept of Interior, and NASA), and in Canada, many public bus systems use biodiesel.