The economical production of lipids is considered as an appropriate renewable alternative feedstock for biodiesel production because of the contemporary concerns on fuel crisis, climate change and food security. In this study, lipid accumulation potential of a novel oleaginous yeast isolate Naganishia liquefaciens NITTS2 by utilizing pre-digested municipal waste activated sludge (PWAS) was explored. Optimization of culture conditions was performed using response surface methodology coupled with genetic algorithm and maximum lipid content of 55.7% was obtained. The presence of lipid was visually confirmed by fluorescence microscopy and its characteristic profile was determined by GC-MS. The yeast lipid was recovered and converted into biodiesel by garbage lipase with the efficiency of 88.34 +/- 1.2%, which was further analyzed by proton nuclear magnetic resonance spectroscopy. Hence, the results of this study strongly suggest the possibility of using PWAS as an efficient and low-cost resource for the production of biodiesel from the oleaginous yeast.