The yeast Saccharomyces cerevisiae has been modified successfully for production of numerous metabolites and therapeutic proteins through metabolic engineering, but has not been utilized to date for the production of lipid-derived compounds. We developed a lipid metabolic engineering strategy in S. cerevisiae based upon culturing techniques that are typically employed for studies of peroxisomal biogenesis; cells were grown in media containing fatty acids as a sole carbon source, which promotes peroxisomal proliferation and induction of enzymes associated with fatty acid beta-oxidation. Our results indicate that growth of yeast on fatty acids such as oleate results in extensive uptake of these fatty acids from the media and a subsequent increase in total cellular lipid content from 2% to 15% dry cell weight. We also show that co-expression of plant fatty acid desaturases 2 and 3 (FAD2 and FAD3); using a fatty acid-inducible peroxisomal gene promoter, coupled the processes of fatty acid uptake with the induction of a new metabolic pathway leading from oleic acid (18: 1) to linolenic acid (18:3). Finally, we show that cultivation of yeast cells in the presence of triacylglycerols and exogenously supplied lipase promotes extensive incorporation of triglyceride fatty acids into yeast cells. Collectively, these results provide a framework for bioconversion of low-cost oils into value-added lipid products.