This study demonstrates a direct transesterification (DT) method for reliable quantification of microalgal lipid. Primary screening of various transesterification methods and the types of biomass (wet, oven dried and lyophilized) were performed with heterotrophically grown Chlorella sp. FC2 IITG which revealed two stage DT with lyophilized biomass using NaOH in first stage and H2SO4 in second stage as the best combination with fatty acid methyl ester (FAME) yield of 39.17% (w/w, dry cell weight). Further optimization of transesterification parameters for selected method using response surface methodology, predicted the optimum values for catalyst to biomass ratio 0.67 (w/w) and 2.07 (v/w), methanol to biomass ratio 49.51 (v/w) and 61.07 (v/w) and reaction time 19.33 (min) and 10 (min) for first and second stages respectively. The optimum conditions showed 462.6% and 445.4% increment in FAME yield when compared with Bligh and Dyer method for Chlorella sp. FC2 IITG and Chlorella sorokiniana FC6 IITG respectively with highest transesterification efficiency of 98.96%. Improved transesterification efficiency of two stage DT was attributed to efficient destabilization of cell wall as confirmed by scanning electron microscopic imaging. FAME produced via DT of Chlorella sp. FC2 IITG satisfied most of the biodiesel properties as per ASTM D6751 and hence, could be an alternative to petro-diesel.