Lipases are used for enzymatic production of fatty acid methyl esters (FAME/ biodiesel), an alternative fuel. However, lipases are intolerant to methanol, which is one of the substrates in the transesterification reaction to produce biodiesel. Methanol denatures lipases and thereby significantly reduces FAME yield. We have used molecular dynamics simulations to investigate methanol induced denaturation of Candida rugosa lipase and the effects of adding glycine betaine (GB), (an osmolyte), to the reaction medium, to keep lipase catalytically active in the presence of methanol. Simulation studies indicate a significant reduction in lipase denaturation, in the presence of 3 M and above concentrations of GB. The simulation results were experimentally validated by assessing FAME yield in the presence and absence of GB. Higher yields of FAME in the presence of GB confirm catalytically active lipase, indicating a stable enzyme and stabilizing action of GB on lipase in the presence of methanol. This study can therefore be regarded as a proof-of-concept to ascertain the stabilizing effect of glycine betaine, on lipase, in the presence of methanol. Furthermore, the fuel properties of the FAME synthesized were assessed by ASTM methods.