Abstract In recent decades, the energy crisis and environmental issues have become a crucial problem. The rapid industrialization has lead humankind to deplete the fossil fuels and consequently the pollutant emissions have increased in the world. Many investigations have been done to find an alternative fuel to fulfill increasing energy demand. Recently, biodiesel has been introduced as an economical renewable and sustainable fuel which is cited as an environment-friendly resource. Around 350 oil-bearing crops were analyzed and some of them were capable to be considered as potential alternative fuels for diesel engines. These include virgin vegetable oils and waste vegetable oils. Rapeseed, jatropha, soybean, and palm oil are mentioned as the most common sources of biodiesel. Many countries have invested in biodiesel as an acceptable source of energy not only in research area but also in production and export. It has been proven that the biodiesel combustion characteristics are similar as petroleum. Higher ignition pressure and temperature, shorter ignition delay and higher peak release were reported in experimental combustion of biodiesel blends. Also, the efficiency of biodiesel base catalysts is more than enzymes and acid catalysts. This article is a literature review on necessity of biodiesel production as alternative fuel recourse in Malaysia and tries to illustrate the combustion characteristics and pollutant formation in biodiesel application.