Microalgae represent an attractive source of biomass for biofuels and chemicals production since they can have higher energy yields per area than conventional biomass crops and can be grown on marginal land using waste, saline, or brackish water. Their use can thus avoid the food-fuel competition for land and water, resulting in major economic and social benefits. At the present stage however, significant developments are requested for making microalgae-to-biofuels processes technologically and economically sustainable. The challenges are thus to increase the efficiency of both algae production and conversion into biofuel. The following parameters appear to be critical for sustainable microalgal production: CO2 concentration; light quantity and quality; batch, fed-batch or continuous growth conditions; photobioreactors design; possible use of wastewater streams. The aim of the ongoing research is to clearly assess the influence of these parameters on the quantitative and qualitative production of biomass, lipids and added-value chemicals by several microalgal species, taking into account the possible antagonism between biomass and lipid production, often depending on the nitrogen and key nutrients supply. Another substantial technical challenge is the development of cost-effective processes for efficient conversion of microalgae biomass to biofuels. In addition to the potential use of oil for biodiesel production, we are currently working towards demonstrating the feasibility of an innovative process, for syngas production by hydrothermal processing of microalgae, after the extraction of some chemicals, valuable for food and health. The process is envisioned as a cycle as closed as possible with respect to nutrients, water and CO2, that should be reused - after the hydrothermal process - for microalgae growth, resulting in higher sustainability for both algae and fuel production. Before the feasibility and sustainability of the process can be demonstrated several key problems stemming from its closed-nature need to be addressed. One major challenge is the recycling of nutrient-rich effluents, which upon continuous operation might become enriched in potential toxicants affecting the growth of algae. For example the presence of some trace metals in the recycled effluent as a result of chemical reactor wall corrosion and catalyst leaching seems to have adverse effects on the growth of microalgae. However algae, like many other organisms, can adapt to extreme environments, like those with metals contamination, and tolerant strains should be more suited to survive under such conditions.