Wet activated sludge was converted directly into biodiesel using water as hydrolysis reagent to enhance the extraction of lipid in activated sludge, and as catalyst for the conversion of neutral lipids into biodiesel under subcritical conditions. At 175 degrees C, 3.5 MPa, a methanol to sludge ratio of 30 (mL/g) and a sludge water content of 84 wt.%, about 90% conversion to fatty acid methyl esters was achieved within 24 h without the need for conventional catalysts such as KOH and H2SO4. Since water is employed as a catalyst, its removal is not required: therefore, the processing costs for producing biodiesel from activated sludge are reduced. The method has the potential for applications to other feedstock with high water contents such as micro-algae. (C) 2012 Elsevier Ltd. All rights reserved.