Despite recent advances in down-stream processing, production of microalgae remains substantially limited because of economical reasons. Harvesting and dewatering are the most energy-intensive processing steps in their production and contribute 20–30% of total operational cost. Bio-flocculation of microalgae by co-cultivation with filamentous fungi relies on the development of large structures that facilitate cost effective harvesting. A yet unknown filamentous fungus was isolated as a contaminant from a microalgal culture and identified as Isaria fumosorosea. Blastospores production was optimized in minimal medium and the development of pellets, possibly lichens, was followed when co-cultured with Chlorella sorokiniana under strict autotrophic conditions. Stable pellets (1–2 mm) formed rapidly at pH 7–8, clearing the medium of free algal cells. Biomass was harvested with large inexpensive filters, generating wet slurry suitable for hydrothermal gasification. Nutrient rich brine from the aqueous phase of hydrothermal gasification supported growth of the fungus and may increase the process sustainability.