Abstract Biodiesel is considered as a potential substitute for petroleum-based diesel fuel owing to its comparable properties to diesel. Biodiesel is generally produced from renewable sources such as agricultural products and microalgae in the presence of a suitable catalyst. Recently ionic liquid (IL) catalyzed synthesis of biodiesel has become a promising pathway to an eco-friendly production route for biodiesel. This review focuses on the use of ILs both as solvents as well as catalysts for sustainable biodiesel production from agricultural feedstocks and microalgae with high free fatty acid content. Reactions catalyzed by ILs are known to render high reactivity under the mild condition and high selectivity of ester product with simple separation steps. The article first discusses the state of the art of biodiesel production using ILs along with the physicochemical properties of the produced biodiesel. Then, current IL technologies were elucidated in terms of the categories such as acidic and basic ILs. The use of more advanced ILs such as supported ionic liquids and ionic liquid-enzyme catalysts on different biodiesel feedstocks were also discussed. Furthermore, the role of IL catalyst in intensified biodiesel production methods such as microwave and ultrasound technologies were also discussed. Finally, the prospects and challenges of IL catalyzed biodiesel production are discussed in this article. The review shows that ILs with bronsted acidity or basicity not only pose a low risk to the environment but also result in high biodiesel yields with mild reaction conditions in a short time. Bronsted acidic ILs can convert free fatty acids as well as triglycerides to biodiesel without the need for pretreatment, which facilitates in reducing the production cost of biodiesel. From the review, it can be concluded that ILs present great potential as catalysts for biodiesel production.