AbstractGradual depletion of world petroleum reserves and the impact of environmental pollution of increasing exhaust emissions lead to the search for a suitable alternative fuels for diesel engines. The substitution of conventional fuels (gasoline, diesel) by renewable biofuels is considered a potential way to reduce pollution and to support the sustainable development of a country. Direct use of vegetable oil and animal fat is a promising alternative to solve these problems. An exhaustive review of the experiments in this area, carried out by several researchers in last three decades, is presented here. Different problems associated with the direct use of vegetable oil and animal fat and potential solutions from both public and private sectors are discussed. Some engine manufacturers have started to launch full‐warranty engines with vegetable oil as fuel. It is expected that the competitive engine market will witness more intense research, resulting in the launch of more vegetable‐oil engines with full warranties. The steep rise in food prices in recent years is concerning policy‐makers and has raised the old ‘food vs fuel’ debate. It has been concluded that vegetable oil can probably only substitute small to medium portions of petroleum‐based fuel due to future severe land‐usage competition from food sector. This calls for intense research initiatives into the production of suitable fuel from non‐edible vegetable oil, grown in wasteland. In this regard, genetic engineering may prove to be extremely effective in developing ‘designer fuel’. © 2008 Society of Chemical Industry and John Wiley & Sons, Ltd