The main aim of this study was to identify lipase-producing bacteria from bovine milk samples. The strain possessing the highest lipase activity was identified by physiological and molecular characterization. 16S rRNA phylogenetic analysis showed highest similarity with Pseudomonas sp. and the strain was named Pseudomonas sp. VITSDVM1. The lipase productivity was improved by varying the utilization of substrates, i.e. banana and potato peel extracts, in the production medium. The results of optimization studies showed that lipase activity was maximum with groundnut oil, compared with the other carbon sources used, and with peptone as a nitrogen source. The optimum pH and temperature were 8 and 40°C, respectively. The optimum substrate concentration was 20% for the incubation period of 72 h with a maximum activity of 4.66 U mL−1. The purified lipase enzyme analyzed by high-performance liquid chromatography revealed a retention time of 3.6 min. Hence, lipase production using agricultural waste such as banana and potato peels could be used in industrial applications. © 2015, © 2015 Taylor & Francis.