Systems, methods and microbes that allow the biological production of hydroxy fatty acids and dicarboxylic fatty acids are provided. Specifically, hydroxy fatty acids and dicarboxylic fatty acids are produced by microbes that have been engineered to overexpress acyl ACP thioesterase plus an alkane degration pathway, such as AlkBGT or AlkJH These can be in separate microbes or the same microbe, and separate microbes can be co-cultured or sequentially cultured. Continuously fed systems transferring secreted fats from one microbial culture to another can also be used.