A method for preparing polyols from fatty acid substrates such as free fatty acids, alkyl esters of fatty acids, mono-glycerides, diglycerides, and triglycerides. The method comprises the steps of (a) epoxidizing an unsaturated fatty acid substrate and (b) hydroxylating the epoxidized fatty acid substrate with at least one diol to produce a polyol or a blend of polyols. The method may be varied to produce polyols with desired functionality, molecular weights, or viscosity.