A lipase-producing bacterium strain B68 screened from soil samples of China was identified as Pseudomonas fluorescens. With GenomeWalker, the open reading frame of lipase gene lipB68, encoding 476 amino acids, was cloned and expressed in Escherichia coli BL21 (DE3). By affinity chromatography, the recombinant LipB68 protein was purified to the purity of 95%. As a member of lipase subfamily I.3, LipB68 has a unique optimum temperature of 20 degrees C, which was the lowest in this subfamily. In chiral resolution, LipB68 effectively catalyzed the transesterification of both alpha-phenylethanol and alpha-phenylpropanol at 20 degrees C, achieving E values greater than 100 and 60 after 120 h, respectively. Among all the known catalysts in biodiesel production, LipB68 produced biodiesel with a yield of 92% after 12 h, at the lowest temperature of 20 degrees C, and is the first one of the I.3 lipase subfamily reported to be capable of catalyzing the transesterification reaction of biodiesel production. Since lipase-mediated biodiesel production is normally carried out at 35-50 degrees C, the availability of a highly active lipase with a low optimal temperature can provide substantial savings in energy consumption. Thus, this novel psychrophilic lipase (LipB68) may represent a highly competitive energy-saving biocatalyst.