This paper aimed to examine how algal biomass can be used to produce biofuels as a sustainable and renewable energy source. There are significant environmental and resource challenges related to algal biofuel production, as algae can thrive on non-arable land and utilise wastewater instead of freshwater. This study highlighted algae for their high lipid content and superior photosynthetic efficiency, making them highly suitable for biofuel production. It also analysed the technical and economic challenges, such as high production costs and energy-intensive processes, to assess the scalability and sustainability of algal biofuels. Several solutions were proposed, including genetic engineering, cost-effective lipid extraction methods, and the integration of algae cultivation with wastewater treatment and CO2 capture. According to this study, algal biofuels could play a significant role in combating climate change, reducing fossil fuel dependency and achieving a more sustainable global energy future. Realising this potential requires technological innovation, collaborative efforts and supportive policies.