My dad made biodiesel for a few years to run an old Rabbit and TDI Jetta.  There are two routes you can take:   
Biodiesel - You start with used vegetable oil, filter it, add some chemicals, and end up with fuel that will run a diesel engine with zero modifications.  You also get glycerin as a byproduct, which can work nicely as a cleaner.  Notes: Seems less willing to start in cold weather, he usually used a 1:1 biodiesel/diesel mix.  Exhaust smells like chinese food (or w/e they cooked in the oil).   
Pure oil - With modification, you can run pure vegetable oil in a diesel engine, again the typical source is filtered used cooking oil.  From what I understand, you basically just need to install a fuel line heater (I believe just to bring down the viscosity).  I don't think you have to do anything else, but I haven't seen it first hand so I could be wrong.