Developing reusable and easy-to-operate biocatalysts is of significant interest in biodiesel production. Here, magnetic whole-cell catalysts constructed through immobilizing recombinant Escherichia coli cells (containing MAS1 lipase) into Fe3O4–chitosan magnetic microspheres (termed MWCC@MAS1) were used for fatty acid methyl ester (FAME) production from waste cooking oil (WCO). During the preparation process of immobilized cells, the effects of chitosan concentration and cell concentration on their activity and activity recovery were investigated. Optimal immobilization was achieved with 3% (w/v) chitosan solution and 10 mg wet cell/mL cell suspension. Magnetic immobilization endowed the whole-cell catalysts with superparamagnetism and improved their methanol tolerance, enhancing the recyclability of the biocatalysts. Additionally, we studied the effects of catalyst loading, water content, methanol content, and reaction temperature on FAME yield, optimizing these parameters using response surface methodology and Box–Behnken design. An experimental FAME yield of 89.19% was gained under the optimized conditions (3.9 wt% catalyst loading, 22.3% (v/w) water content, 23.0% (v/w) methanol content, and 32 °C) for 48 h. MWCC@MAS1 demonstrated superior recyclability compared to its whole-cell form, maintaining about 86% of its initial productivity after 10 cycles, whereas the whole-cell form lost nearly half after just five cycles. These results suggest that MWCC@MAS1 has great potential for the industrial production of biodiesel.