The focus on biodiesel research has shown a tremendous growth over the last few years. Several microbial and plant sources are being explored for the sustainable biodiesel production to replace the petroleum diesel. Conventional methods of biodiesel production have several limitations related to yield and quality, which led to development of new engineering strategies to improve the biodiesel production in plants, and microorganisms. Substantial progress in utilizing algae, yeast, and Escherichia coli for the renewable production of biodiesel feedstock via genetic engineering of fatty acid metabolic pathways has been reported in the past few years. However, in most of the cases, the successful commercialization of such engineering strategies for sustainable biodiesel production is yet to be seen. This paper systematically presents the drawbacks in the conventional methods for biodiesel production and an exhaustive review on the present status of research in genetic engineering strategies for production of biodiesel in plants, and microorganisms. Further, we summarize the technical challenges need to be tackled to make genetic engineering technology economically sustainable. Finally, the need and prospects of genetic engineering technology for the sustainable biodiesel production and the recommendations for the future research are discussed.