Lipase-catalyzed transesterification of vegetable oils is an important reaction that produces fatty acid alkyl esters which are valuable intermediates in oleo chemistry and are excellent substitutes to diesel fuel. In present work lipase producing bacteria were isolated from oil spilled soil samples collected from different areas of Raipur, India by serial dilution method. Lipase activity of extracellular lipase was determined by titrimetric method. The sodium alginate entrapment was carried out to immobilize lipase according to the standard method. Out of 15 bacterial isolates (LPB1-LPB15), LPB1 exhibited the maximum extracellular lipase activity on lipase assay medium. Thus, it was selected for further study. Olive oil was found to be the best substrate for lipase production (0.0070 μg/mL /min) among the substrates tested. This isolate exhibited further increase in activity with value of 0.0099 μg/mL/min using olive oil as substrate in production medium supplemented with lecithin as emulsifier at pH 7.2 after 3 days of incubation at 30°C (160 rpm). The transesterification capability of the crude extracellular lipase from LPB1 was assessed using thin layer chromatography by using hexane/diethyl ether/acetic acid as solvent system in the ratio of 90:10:1 (v/v/v). The free extracellular lipase exhibited the formation of methyl esters with the vegetable oils tested such as karanja (Rf 0.59), neem (Rf 0.59), castor (Rf 0.6) and olive oil (Rf 0.62). Both the soluble and immobilized lipase of this isolate demonstrated the methanolysis of non edible oil of Karanja (Pongamia pinnata) within 1-3 h.