The modification of montmorillonite K10 with Fe3+ was investigated to study the optimum ion-exchange occurred in the interlayers of clays. Montmorillonite K10 was modified to be applied as a catalyst in biodiesel production from waste cooking oil (WCO). Three methods to optimize the ion-exchange process were investigated. For method 1 and method 2, respective 14% and 27% by mass of Fe in montmorillonite K10 were stirred in a closed cap system for 7 hours while method 3 applied 20% of Fe stirred with montmorillonite K10 for 24 hours until it became mold and slurry. The ability of ion-exchange was tested using SEM/EDX. It was found that 1.21% Fe composition increased by using method 1 while 2.66% Fe increased using method 2. The highest Fe exchange was detected using method 3 with 5.23% increment. For more accurate result, 20% Fe-MMT K10 from method 3 was characterized using XRF and it was found that the ion exchange occurred with interchangeable Ca2+. In correlation, the effect of Fe increment on acidity was studied by using TPD-NH3. Naturally, montmorillonite K10 possessed 0.232 mmol/g of acidity. The results found that the highest acidity was detected for 20% Fe-MMT K10 (14.261 mmol/g). The application of montmorillonite K10 on biodiesel production increased the yield up to 38.39% compared to the reaction without catalyst (26.80%). With the aid of modified montmorillonite K10, 66.54% and 69.32% biodiesel were produced using catalyst from method 1 and 2 respectively. Amazingly, an outstanding yield was produced by using catalyst from method 3 (84.58%). Therefore, 20% Fe-MMT K10 catalyst was selected for further biodiesel optimization via conventional method. It was found that 96.49% biodiesel was successfully produced with 28.65% acid conversion at 150 °C, 6 h, 12:1 methanol: oil and 4 wt.% mass of catalyst. The investigations on acid conversion and biodiesel yield proved that the modification of montmorillonite K10 with 20% Fe is the optimum and the catalyst can undergo both esterification and transesterification reactions simultaneously to produce optimum biodiesel yield. © 2020, Malaysian Society of Analytical Sciences. All rights reserved.