A sludge fraction is obtained from the industries which recycle cooking oil and this sludge contains a large amount of oil with an extremely high acidity ( > 60%). In this work, we propose a scheme for methyl ester production from this residual oil consisting of the esterification of the free fatty acids followed by the transesterification of the remaining triglycerides. Esterifications were carried out with different methanol:oil molar ratios, and various catalysts in different weight ratios. The results revealed that homogeneous catalysts produced higher yields than heterogeneous ones in the esterification reaction. With the aim of improving the process, a previous triglyceride hydrolysis was assayed using lipases from Candida rugosa. Finally, the 3-stage process was performed under the most favorable conditions for each stage obtaining 84% wt. fatty acid methyl esters, which shows the potential of this residual oil as a source of biodiesel.