Lipases are versatile catalysts. In addition to their natural reaction of fat hydrolysis, lipases catalyze a plethora of other reactions such as esterification, amidation, and transesterification of esters as well as organic carbonates. Moreover, lipases accept a wide variety of substrates while maintaining their regioselectivity and stereoselectivity. Lipases are highly stable even under adverse conditions such as organic solvents, high temperatures, and so forth. Applications of lipases include production of food additives, chiral intermediates, and pharmaceutical products. Among these, synthesis of various chiral intermediates in pharmaceutical industry and cocoa butter substitutes is being commercially exploited currently. Lipase-catalyzed esterification and transesterification in anhydrous media (e.g., organic solvents and supercritical fluids) has been an area of major research activity in the past decade or so. Absence of water eliminates the competing hydrolysis reaction. Moreover, substrate specificity, regioselectivity, and stereoselectivity of the enzyme can be controlled by varying the reaction medium. Although organic solvents, which are generally used for lipase-catalyzed reactions, are nearly anhydrous; they contain water in trace quantities. This water content can be controlled over a range and has a profound effect on the activity of lipases. Water not only affects the enzyme but also acts as a competing nucleophile. Enzyme activity has been correlated with thermodynamic activity of water in the medium rather than with the concentration of water. Because lipases are not soluble in most organic solvents, the method of preparation of the enzyme has a strong influence on the enzymatic activity. The major factors are the pH of the aqueous solution in which the enzyme last existed, additives used during preparation, and method of removal of water (e.g., freeze-drying, evaporation, extraction of enzyme into solvent, etc.). Immobilization of lipases allows easy recovery and reuse of the enzyme. Various immobilization techniques have been studied for lipases and some of them have been shown to enhance the activity and stability of the enzyme. Enzyme stability is an important parameter determining the commercial feasibility of the enzymatic process. Various factors, such as temperature, reaction medium, water concentration, as well as the method of preparation, affect the stability of the lipases. This review deals with fundamental as well as practical aspects of lipase catalysis. A discussion has been presented on various factors affecting lipase activity and stability. Moreover, a brief account of current and potential applications of lipases has been given.