Understanding the unique features of algal metabolism may be necessary to realize the full potential of algae as feedstock for the production of biofuels and biomaterials. Under nitrogen deprivation, the green alga C. reinhardtii showed substantial triacylglycerol (TAG) accumulation and up-regulation of a gene, GPD2, encoding a multidomain enzyme with a putative phosphoserine phosphatase (PSP) motif fused to glycerol-3-phosphate dehydrogenase (GPD) domains. Canonical GPD enzymes catalyze the synthesis of glycerol-3-phosphate (G3P) by reduction of dihydroxyacetone phosphate (DHAP). G3P forms the backbone of TAGs and membrane glycerolipids and it can be dephosphorylated to yield glycerol, an osmotic stabilizer and compatible solute under hypertonic stress. Recombinant Chlamydomonas GPD2 showed both reductase and phosphatase activities in vitro and it can work as a bifunctional enzyme capable of synthesizing glycerol directly from DHAP. In addition, GPD2 and a gene encoding glycerol kinase were up-regulated in Chlamydomonas cells exposed to high salinity. RNA-mediated silencing of GPD2 revealed that the multidomain enzyme was required for TAG accumulation under nitrogen deprivation and for glycerol synthesis under high salinity. Moreover, a GPD2-mCherry fusion protein was found to localize to the chloroplast, supporting the existence of a GPD2-dependent plastid pathway for the rapid synthesis of glycerol in response to hyperosmotic stress. We hypothesize that the reductase and phosphatase activities of PSP-GPD multidomain enzymes may be modulated by post-translational modifications/mechanisms, allowing them to synthesize primarily G3P or glycerol depending on environmental conditions and/or metabolic demands in algal species of the core Chlorophytes.