A single-step, extractive reaction for extraction of lipids such as biodiesel components, omega-3 fatty acids, or other triglycerides from microbial cells was examined. Conventional methods for lipid extraction use toxic solvents, and require multiple steps and long processing times. When the goal is to produce fatty acid methyl esters or FAMEs, the extracted lipids are subjected to a separate transesterification reaction with simple alcohols in the presence of an acid or base catalyst. A simplified, single-step reactive extraction method can be applied that combines the sequential extraction followed by transesterification using acidified alcohols - a process known as in situ transesterification. It was hypothesized that the in situ transesterification could be scaled-up for industrial processing by a systematic understanding of fundamental reaction parameters including temperature, catalyst concentration, and biomass/solvent ratios. The hypothesis was tested using a marine fungus, Schizochytrium limacinum SR21. Growth of SR21 resulted in biomass yields of 0.3g-biomass/g-glycerol and accumulated high amounts of palmitic acid (C16:0, 0.255g-FAME/g-biomass), docosahexaenoic acid (DHA, C22:6, 0.185g-FAME/g-biomass), myristic acid (C14:0) (0.017g-FAME/g-biomass), and pentadecanoic acid (C15:0, 0.012g-FAME/g-biomass). The bulk phase separation characteristics of the FAMEs were evaluated at high biomass concentrations. Recyclability of the acidified methanol in the system was also tested. A significant finding was that automatic phase separation of the FAMEs could be achieved. When FAME concentration reaches critical solubility, 22.7mg-FAME ml-1 methanol, all remaining FAMEs automatically phase separate. After FAME separation, the remaining methanol was recycled and used in subsequent in situ reactions. Upon recycling, greater than 85% of product extraction and recovery was achieved. The kinetics of the transesterification reaction was evaluated under various acid and biomass/solvent conditions. Based on the fundamental reaction mechanism governing the in situ transesterification, a theoretic model was derived to predict the conversion of TAGs into FAMEs. Kinetic parameters were estimated by fitting the experimental data and the resulting model. The model derived closely resembled the observations in this study. Through understanding of the fundamental reaction kinetics and limitations during processing, a new, reliable, and cost-effective system for large scale lipid production can be developed for microbial biomass including oleaginous algae, fungi, and yeast.