Abstract Palm oil soap stock (POSS) was recycled from bio-waste to bio-fuel. Firstly, POSS was converted through acidification to be acidified POSS (APOSS) coupled with solvent extraction. APOSS with a high content of free fatty acids (FFAs) (90.94%) was obtained. Subsequently, the FFAs in APOSS were converted to biodiesel via esterification, catalyzed by immobilized alginate-polyvinyl alcohol (ALG-PVA) lipase. The key factors affecting the reaction, such as the temperature (30–50 °C), methanol to FFA molar ratio (2:1 to 4:1), and agitation rate (150–250 rpm) were optimized by statistical response surface methodology (RSM). The highest biodiesel yield was achieved with a reaction temperature of 40 °C, methanol/FFA molar ratio of 3:1, and 200 rpm agitation rate, as the optimal conditions. Furthermore, the biocatalyst can be reused up to 16 cycles. Interestingly, the alternative biodiesel production process reported herein promotes zero waste from the palm oil refinery process.