Global petroleum reserves are shrinking at a fast pace, increasing the demand for alternate fuels. Microalgae have the ability to grow rapidly, and synthesize and accumulate large amounts (approximately 20-50% of dry weight) of neutral lipid stored in cytosolic lipid bodies. A successful and economically viable algae based biofuel industry mainly depends on the selection of appropriate algal strains. The main focus of bioprospecting for microalgae is to identify unique high lipid producing microalgae from different habitats. Indigenous species of microalgae with high lipid yields are especially valuable in the biofuel industry. Isolation, purification and identification of natural microalgal assemblages using conventional techniques is generally time consuming. However, the recent use of micromanipulation as a rapid isolating tool allows for a higher screening throughput. The appropriate media and growth conditions are also important for successful microalgal proliferation. Environmental parameters recorded at the sampling site are necessary to optimize in vitro growth. Identification of species generally requires a combination of morphological and genetic characterization. The selected microalgal strains are grown in upscale systems such as raceway ponds or photobireactors for biomass and lipid production. This paper reviews the recent methodologies adopted for site selection, sampling, strain selection and identification, optimization of cultural conditions for superior lipid yield for biofuel production. Energy generation routes of microalgal lipids and biomass are discussed in detail. (C) 2010 Elsevier Ltd. All rights reserved.