A newly-isolated oleaginous fungus Mucor circinelloides ZSKP concurrently yielded 21.4% lipids and 11.2% chitosan per gram of biomass. Parameters affecting the co-production were identified using Plackett-Burman design and were statistically optimized using Response Surface Methodology, which resulted in a 3-fold improvement in lipid production. The lipid profile showed a high content of unsaturated fatty acids including oleic (37%), linolenic (14%) and linoleic acids (19%), while palmitic acid was the major saturated fatty acid (21%). A comparative study to evaluate the efficacy of enzymatic (lipase) and chemical treatments for biodiesel production from fungal lipids and sunflower oil revealed enhanced production of biodiesel from fungal lipids. Synthesized biodiesel from M. circinelloides ZSKP satisfied standard specifications and had a higher cetane number (56), lower kinematic viscosity (4.6mm(2)/s) and lower acid number (0.03) compared to sunflower oil. Results suggest Mucor circinelloides ZSKP is a promising candidate for implementation of the biorefinery concept.