The inherent capability and increased efficiency of microalgae to convert sunlight into solar chemical energy are further enhanced by the higher amount of oils stored in microalgae compared to other land-based plant species. Therefore, the widespread interest in producing biofuels from microalgae has gained considerable interest among leading energy experts and researchers due to the burgeoning global issues stemming from the depletion of fossil fuel reserves, future energy security, increasing greenhouse gas emissions, and the competition for limited resources between food crops and conventional biomass feedstock. This paper aims to present the recent advances in biofuel production from microalgae and the potential benefits of microalgae in the energy and environmental sectors, as well as sustainable development. Besides, bottlenecks and challenges mainly relating to techniques of cultivation and harvesting, as well as downstream processes are completely presented. Promising solutions and novel trends for realizing strategies of producing biofuels from microalgae on an industrial and commercial scale are also discussed in detail. Alternatively, the role of microalgae in the circular economy is thoroughly analyzed, indicating that the potential of scaling up current microalgae-based production could benefit from the waste-to-energy strategy with microalgae as a key intermediate. In the future, further research into combining different microalgae biomass pretreatment techniques, separating the microalgae feedstock from the cultured media, developing new species, and optimizing the biofuel production process should be carried out to reduce the prices of microalgae biofuels. © 2022, The Author(s), under exclusive licence to Springer Nature B.V.