The alkane-assimilating yeast Yarrowia lipolytica degrades very efficiently hydrophobic substrates such as n-alkanes, fatty acids, fats and oils for which it has specific metabolic pathways. An overview of the oxidative degradation pathways for alkanes and triglycerides in Y. lipolytica is given, with new insights arising from the recent genome sequencing of this yeast. This includes the interaction of hydrophobic substrates with yeast cells, their uptake and transport, the primary alkane oxidation to the corresponding fatty alcohols and then by different enzymes to fatty acids, and the subsequent degradation in peroxisomal beta-oxidation or storage into lipid bodies. Several enzymes involved in hydrophobic substrate utilisation belong to multigene families, such as lipases/esterases (LIP genes), cytochromes P450 (ALK genes) and peroxisomal acyl-CoA oxidases (POX genes). Examples are presented demonstrating that wild-type and genetically engineered strains of Y. lipolytica can be used for alkane and fatty-acid bioconversion, such as aroma production, for production of SCP and SCO, for citric acid production, in bioremediation, in fine chemistry, for steroid biotransformation, and in food industry. These examples demonstrate distinct advantages of Y. lipolytica for their use in bioconversion reactions of biotechnologically interesting hydrophobic substrates.