Animal fat, used cooking oil and activated sludge (AS) cannot be used as feedstock for biodiesel production using conventional acid-base-catalyzed method because of the presence of high amount of water and free fatty acid (FFA) resulting in the formation of soap. Hydrolysis of AS to produce FFA was proposed in this study. The effects of parameters as temperature, pressure and time of subcritical water (SCW) treatment on the lipids yield and fatty acid profile were systematically studied. Four dewatered AS samples were collected from a wide spectrum of waste water treatment plants in Taiwan. SCW treatment of AS was carried out in a high pressure batch reactor. The amount of extractable lipid as well as FFA content in the extracted lipid increased with increasing treatment temperature from 150 oC to 200 oC in 15 to 30 min and a pressure of 0.5 MPa to 2.0 MPa. The result showed the high amount of crude lipid and FFA content in the extractable lipid were obtained at 175 oC in 15 min and 2 MPa because it can avoid side reactions and degradation of product. The method employed in this study utilized water in wet sludge and required shorter reaction time (15 min) and resulted in the increase of extractable lipid by 1.23 to 4.24 times that of the untreated sludge. In addition to maximizing the extractable lipid in AS, SCW treatment helps avoiding the use of toxic extraction solvents. Therefore, in situ hydrolysis under SCW condition is an environmental friendly and effective treatment process for microbial cells.