<p>Fossil fuels as an energy resource are unsustainable due to their limited availability and associated environmental risks. Their finite availability has prompted the search for greener, economical, and sustainable alternatives. Algal biofuels belong to third generation biofuels having high lipid content. They grow in many mediums including wastewater and also sequester CO₂, thereby contributing to air purification. Algal species are cultivated in open or closed photobioreactor and even in hybrid systems in batches by continuous and semi continuous methods. The yield of biofuel and algal biomass is influenced by algal strain, cultivation system, cultivation method and various factors including temperature, light, CO₂ and pH. Innovative methods for extraction of biolipids which is predominantly composed of palmitic, oleic and other fatty acids, promote sustainability by better resource utilization which are more efficient and economical. The third-generation biofuels, their composition, recent innovations and the underlying trends in cultivation, harvesting and biolipid extraction are discussed. Also, the role of recent innovations and use of Artificial Intelligence, genetic engineering, principles of green chemistry are integrated to understand their role in sustainable algal biofuel production process. Therefore, the present review article provides innovative solutions for sustainable algal biofuel production based on recent innovations and research by performing a critical analysis, coverage of comprehensive research articles and multi-disciplinary approach.</p>