A process for producing biodiesel has been invented by first extracting lipids from the sludges generated during primary and/or biological treatment of municipal, agricultural, and industrial wastewaters using primary, secondary, and tertiary treatments followed by the transesterification of the extracted lipids using transesterification conversion into alcohol-based esters. The resulting products from this process include biodiesel, glycerol, lipid-free proteins, various other useful chemicals and an aqueous-based substrate well suited for optimized digestion within subsequent biological digestion (either aerobic or anaerobic). The lipids extracted from the sludges containing high levels of microorganisms are phospholipids which can also be directly used as lecithin. The extraction of the lipids from the sludges will be performed using chemical extraction techniques with the transesterification of the extracted lipids accomplished using basic, acidic, and/or a combination of the two transesterification techniques.