Biodiesel production using microalgae is attractive in a number of respects. Here a number of pros and cons to using microalgae for biofuels production are reviewed. Algal cultivation can be carried out using non-arable land and non-potable water with simple nutrient supply. In addition, algal biomass productivities are much higher than those of vascular plants and the extractable content of lipids that can be usefully converted to biodiesel, triacylglycerols (TAGs) can be much higher than that of the oil seeds now used for first generation biodiesel. On the other hand, practical, cost-effective production of biofuels from microalgae requires that a number of obstacles be overcome. These include the development of low-cost, effective growth systems, efficient and energy saving harvesting techniques, and methods for oil extraction and conversion that are environmentally benign and cost-effective. Promising recent advances in these areas are highlighted.