Compared to autotrophic microalgae, heterotrophic microalgae have the potential for providing higher yield of biomass and lipids for biofuel production. But this cultivation mode does possess several challenges, among which cheap carbon sources, bioreactor design, and downstream processing are the major bottlenecks impeding large scale cultivations for producing biofuels in a cost-effective way. This paper reviews the most recent research and development in heterotrophic microalgae covering different carbon sources (wastewater, non-sugar materials, and lignocellulosic feedstocks), design of bioreactor, and production of liquid transportation fuels, in particular, biodiesel and bio-oils from algal biomass through biochemical or thermochemical pathways. Besides summarizing promising technologies currently available, this review also recommends future research directions that can really benefit the biofuel research community. (C) 2012 Elsevier Ltd. All rights reserved.