Microalgae have recently attracted considerable interest worldwide, due to their extensive application potential in the renewable energy, biopharmaceutical, and nutraceutical industries. Microalgae are renewable, sustainable, and economical sources of biofuels, bioactive medicinal products, and food ingredients. Several microalgae species have been investigated for their potential as value-added products with remarkable pharmacological and biological qualities. As biofuels, they are a perfect substitute to liquid fossil fuels with respect to cost, renewability, and environmental concerns. Microalgae have a significant ability to convert atmospheric CO2 to useful products such as carbohydrates, lipids, and other bioactive metabolites. Although microalgae are feasible sources for bioenergy and biopharmaceuticals in general, some limitations and challenges remain, which must be overcome to upgrade the technology from pilot-phase to industrial level. The most challenging and crucial issues are enhancing microalgae growth rate and product synthesis, dewatering algae culture for biomass production, pretreating biomass, and optimizing the fermentation process in case of algal bioethanol production. The present review describes the advantages of microalgae for the production of biofuels and various bioactive compounds and discusses culturing parameters.