Biofuels made from algal biomass are being considered as the most suitable alternative energy in current global and economical scenario. Microalgae are known to produce and accumulate lipids within their cell mass which is similar to those found in many vegetable oils. The efficient lipid producer algae cell mass has been reported to contain more than 30% of their cell weight as lipids. According to US DOE microalgae have the potential to produce 100 times more oil per acre land than any terrestrial plants. This article reviews up to date literature on the composition of algae, mechanism of oil droplets, triacylglycerol (TAG) production in algal biomass, research and development made in the cultivation of algal biomass, harvesting strategies, and recovery of lipids from algal mass. The economical challenges in the production of biofuels from algal biomass have been discussed in view of the future prospects in the commercialisation of algal fuels. (C) 2010 Elsevier Ltd. All rights reserved.