Fatty acid ethyl esters (FAEEs) are attractive biofuel molecules. Conventional FAEEs production process uses triglycerides and ethanol as feedstocks and is sensitive to water contents. In this work, we show that the oleaginous yeast Rhodosporidium toruloides cells are capable of converting lipids into FAEEs intracellularly in aqueous phase. Up to 73% of cellular neutral glycerides could be converted into FAEEs when lipid-rich cells were incubated for 84h at 35°C, pH 6.0 in a broth containing 10 vol% ethanol. It was found that neutral glycerides were first hydrolyzed to free fatty acids followed by esterification and that lipid droplets played important roles in the process. This new process provides a novel opportunity for integration of microbial lipid production technology with bioethanol fermentation for more efficient production of drop-in biofuels from renewable resources.