The immiscibility of canola oil in methanol provides a mass-transfer challenge in the early stages of the transesterification of canola oil in the production of fatty acid methyl esters (FAME or biodiesel). To overcome or rather, exploit this situation, a two-phase membrane reactor was developed to produce FAME from canola oil and methanol. The transesterification of canola oil was performed via both acid- or base-catalysis. Runs were performed in the membrane reactor in semi-batch mode at 60, 65 and 70 degrees C and at different catalyst concentrations and feed flow rates. Increases in temperature, catalyst concentration and feedstock (methanol/oil) flow rate significantly increased the conversion of oil to biodiesel. The novel reactor enabled the separation of reaction products (FAME/glycerol in methanol) from the original canola oil feed. The two-phase membrane reactor was particularly useful in removing unreacted canola oil from the FAME product yielding high purity biodiesel and shifting the reaction equilibrium to the product side. (c) 2006 Elsevier Ltd. All rights reserved.