Due to anthropogenic emissions, there is an increase in the concentration of carbon dioxide (CO) in the atmosphere. Microalgae are versatile, universal, and photosynthetic microorganisms present in nature. Biological CO sequestration using microalgae is a novel concept in CO mitigation strategies. In the current review, the difference between carbon capture and storage (CCS), carbon capture utilization and storage (CCUS), and carbon capture and utilization (CCU) is clarified. The current status of CO sequestration techniques is discussed, including various methods and a comparative analysis of abiotic and biotic sequestration. Particular focus is given to sequestration methods associated with microalgae, including advantages of CO bio-sequestration using microalgae, a summary of microalgae species that tolerate high CO concentrations, biochemistry of microalgal CO biofixation, and elements influencing the microalgal CO sequestration. In addition, this review highlights and summarizes the research efforts made on the production of various biofuels using microalgae. Notably, Chlorella sp. is found to be the most beneficial microalgae, with a sizeable hydrogen (H) generation capability ranging from 6.1 to 31.2 mL H/g microalgae, as well as the species of C. salina, C. fusca, Parachlorella kessleri, C. homosphaera, C. vacuolate, C. pyrenoidosa, C. sorokiniana, C. lewinii, and C. protothecoides. Lastly, the technical feasibility and life cycle analysis are analyzed. This comprehensive review will pave the way for promoting more aggressive research on microalgae-based CO sequestration.