Most previous studies reported in literature on biodiesel production from sludge were performed by acid catalyzed transesterification that required long reaction time (about 24 h) and high methanol loading. The objective of this study was to investigate the in situ transesterification of sludge in subcritical mixture of methanol and acetic acid. At 250 °C and a solvent (85% methanol and 15% acetic acid) to sludge ratio of 5 (mL g−1), a FAME yield of 30.11% can be achieved in 30 min, compared to the yield of 35% obtained by the acid-catalyzed (4% H2SO4) transesterification which required 24 h at 55 °C and a methanol to sludge ratio of 25 (mL g−1). The method developed in this study avoided using mineral acid, significantly reduced reaction time and methanol loading to achieve comparable FAME yield.