Cows and chickens will also be transformed to power motor vehicles.
The companies say that this renewable source of energy will be cleaner than conventional diesel. It is hoped that it will be available at petrol stations by the end of the year.
"It is chemically equivalent to diesel itself," said Geoff Webster, who is managing the scheme for Tyson Foods, in an interview with the BBC World Service.
"It has lower carbon dioxide, it is zero sulphur, so many positive benefits for the environment."
ConocoPhillips expects to produce 175 million gallons of animal diesel a year and hopes to start mass production in 2009. That will add another 15,000 barrels of diesel a day, which amounts to about 3% of the company's total diesel output.
Tyson Foods made clear that it would not be processing animals simply to get the fat to turn into diesel. The fat will only be sent as a by-product of meat-production.
Tyson Foods and ConocoPhillips have yet to discuss the issue of animal diesel with vegetarian, religious or animal rights groups.
When the diesel is eventually produced, it will be pumped into a network and mixed with other types of diesel, making it impossible to tell at the pump whether the diesel is made from animal fat or not.
The company expects to spend approximately $100 million (£50m) over several years on the project.
"A recent report published by the United Nations concludes that the meat industry is responsible for more global warming emissions than all the cars, trucks and planes in the world combined."
"Clearly, the answer to global warming isn't to fill gas guzzling cars with ground up remains of tortured animals, it is to go vegetarian, which is something every person can afford to do and should do for the sake of their own health, animals and the environment," said animal rights group PETA.