With impending climate change and ever decreasing supplies of easily extractable fossil fuel, means to produce renewable and sustainable replacement fuels are being sought. Plants or algae appear ideal since they can use sunlight to fix CO2 into usable fuel or fuel feedstocks. However, as the world population approaches the 1010 (10 billion) mark, the use of agricultural land to produce fuel instead of food cannot be justified. Microalgal biofuel production is under intense investigation due to its promise as a sustainable, renewable biofuel that can be produced using non-arable land and brackish or non-potable water. Some species accumulate high levels of TAGs (triacylglycerols) that can be converted to fatty acid esters suitable as replacement diesel fuels. However, there are many technical barriers to the practical application of microalgae for biofuel production and thus a number of significant challenges need to be met before microalgal biodiesel production becomes a practical reality. These include developing cost-effective cultivation strategies, low energy requiring harvesting technologies, and energy efficient and sustainable lipid conversion technologies. The large culture volumes that will be necessary dictate that the necessary nutrients come from wastewaters, such as the effluents from secondary treatment of sewage. Economical and energy sparing harvesting will require the development of novel flocculation or floatation strategies and new methods of oil extraction/catalysis that avoid the extensive use of solvents. Recent advances in these critical areas are reviewed and some of the possible strategies for moving forward are outlined.