Proteus sp. SW1 was found to produce an extracellular solvent tolerant lipase. The gene, lipA, encoding a bacterial lipase, was cloned from total Proteus sp. SW1 DNA. lipA was predicted to encode a 287 amino acid protein of 31.2 kDa belonging to the Group I proteobacterial lipases. Purified His-tagged LipA exhibited optimal activity at pH 10.0 and 55°C. It was highly stable in organic solvents retaining 112% of its activity in 100% isopropanol after 24 h, and exhibited more than 200% of its initial activity upon exposure to 60% acetone, ethanol, and hexane for 18 h. Biodiesel synthesis reactions, using a single step addition of 13% an acyl acceptor ethanol, showed that LipA was highly effective at converting palm oil into biodiesel.