While using microbial lipids as a biodiesel feedstock, effective extraction of lipids is essential. Also, the crude lipase produced from waste organics could be a potentially low-cost biocatalyst for the transesterification process. In this study ultrasound with the suitable solvent system was used for extracting the lipids from novel oleaginous yeast Naganishia liquefaciens NITTS2. Highest lipid recovery obtained was 99.3 +/- 0.1% at optimized biomass concentration (60 g/L), solvents ratio (1: 1, chloroform/methanol), ultrasound power density (0.6 W/mL), 30 degrees C and 30 min. This lipid was characterized by GC-MS. It was then converted into biodiesel with garbage lipase as a catalyst using RSM designed transesterification process, which yielded 97.13 +/- 1.05% at the optimum of 6.4 methanol/oil molar ratio, 20% enzyme concentration, 35 degrees C and 16 h. Thus, ultrasound aided extraction could be a promising method for lipid recovery from microbial biomass and the garbage lipase can be a sustainable, eco-friendly catalyst for commercial biodiesel production.