The immiscibility of canola oil in methanol provides a mass-transfer challenge in the early stages of the transesterification of canola oil in the production of fatty acid methyl esters (FAME or biodiesel). To overcome or rather, exploit this situation, a two-phase membrane reactor was developed to produce FAME from canola oil and methanol. The transesterification of canola oil was performed via both acid- or base-catalysis. Runs were performed in the membrane reactor in semi-batch mode at 60, 65 and 70 degrees C and at different catalyst concentrations and feed flow rates. Increases in temperature, catalyst concentration and feedstock (methanol/oil) flow rate significantly increased the conversion of oil to biodiesel. The novel reactor enabled the separation of reaction products (FAME/glycerol in methanol) from the original canola oil feed. The two-phase membrane reactor was particularly useful in removing unreacted canola oil from the FAME product yielding high purity biodiesel and shifting the reaction equilibrium to the product side.