The overconsumption of fossil fuels to meet energy requirements is leading to the inevitable depletion of the non-renewable resource and increase in environmental concern. This has led to the impetus of searching for environmentally benign alternative energy sources. Biodiesel is a renewable, non-toxic, and sustainable fuel alternative that has gained an unprecedented increase in attention. Conventional first-generation feedstocks (i.e., soybean and palm oil) have caused controversy due to competition with food, large land requirements and deforestation. Oleaginous microorganisms are emerging biodiesel feedstocks. However, the biodiesel production cost in this route is uncompetitive with conventional vegetable oils due to the high cost of substrate utilized. Secondary wastewater sludge was proven to be a low-cost, abundant, and sustainable resource substrate for oleaginous yeast cultivation for lipid production and transesterification to biodiesel. Al Ansab and Samail primary and secondary sludge were analyzed in terms of their physiochemical properties and Al Ansab secondary sludge was selected as the suitable substrate for Cryptococcus curvatus and Rhodosporidium toruloides cultivation for lipid production. The thermal hydrolyzed pretreatment was found to be most effective in releasing sludge organics (COD, carbohydrates, proteins), in comparison to the raw, filtrate, and NaOH pretreatments. Lipid production experiments demonstrated that R. toruloides comparatively enhanced growth and lipid accumulation than C. curvatus; maximum biomass, lipid yield and lipid content for R. toruloides after 3 days of cultivation were 3.50 ± 0.05 g/L, 2.38 ± 0.05 g/L and 68.01 ± 0.004 % at pH 8.0, respectively. Further optimization experiments increased lipid accumulation by 12% by optimizing process parameters; sludge concentration, pH, and inoculum load conditions at 30 g/L, 5.0, and 15%, respectively. The quadratic model produced by RSM was found to be significant in predicting the lipid content as the observed results were in close agreement with the model-predicted results (R2 = 0.9718). The FAME's profile indicated that both oleaginous yeasts demonstrated similar fatty acid characteristics to conventional biodiesel feedstocks. Analysis of biodiesel properties showed that all characteristics were in accordance with international biodiesel standards. Therefore, the microbial lipids can be used for biodiesel application. The optimized conditions resulted in biodiesel characteristics with enhanced cold flow properties due to the balanced ratio of saturated to unsaturated fatty acids. Furthermore, cultivation of R. toruloides showed effective COD, TKN and P removal efficiencies at 72 h (71.64, 56.21 and 69.93%, respectively). R. toruloides also demonstrated the ability to produce carotenoids, which serves as an additional value-added product. The larger implication of the study is to reduce dependence on fossil fuels by diversifying the current energy scenario, as well as enhance wastewater treatment and mitigate sludge management issues in the Sultanate of Oman.