Commercial production of biodiesel uses refned vegetable as the feedstock with base as the catalyst. However, pure vegetable oil contributes up to 80% of the overall biodiesel production cost. Activated sludge is a rich source of lipid and a potential feedstock for biodiesel production. It was estimated that drying and oil extraction constitutes more than 50% of the cost of biodiesel production from wet activated sludge. In this study, wet activated sludge was directly used as the feedstock to react with methanol under subcritical water condition. At 250°C and a methanol to wet sludge ratio of 3.0 mL/g, a Fatty Acid Methyl Ester (FAME) yield of 33% can be achieved in 4 h. Acetic acid was employed as the catalyst to decrease the amount of methanol to 2.25 mL/g and reaction time to 1 h that were required to reach the same FAME yield (33%). This process can be applied to maximize biodiesel conversion of feedstock with high FFA and moisture contents.