Criteria selected for screening of biosurfactant production by Bacillus megaterium were hemolytic assay, bacterial cell hydrophobicity and the drop-collapse test. The data on hemolytic activity, bacterial cell adherence with crude oil and the drop-collapse test confirmed the biosurfactant-producing ability of the strain. Accordingly, the strain was cultured at different temperatures, pH values, salinity and substrate (crude oil) concentration in mineral salt medium to establish the optimum culture conditions, and it was shown that 38C, 2.0% of substrate concentration, pH 8.0 and 30 parts per thousand of salt concentration were optimal for maximum growth and biosurfactant production. Laboratory scale biosurfactant production in a fermentor was done with crude oil and cheaper carbon sources like waste motor lubricant oil and peanut oil cake, and the highest biosurfactant production was found with peanut oil cake. Characterization of partially purified biosurfactant inferred that it was a glycolipid with emulsification potential of waste motor lubricant oil, crude oil, peanut oil, diesel, kerosene, naphthalene, anthracene and xylene.