Abstract Due to increasing oil prices and climate change concerns, biofuels have become increasingly important as potential alternative energy sources. However, the use of arable lands and valuable resources for the production of biofuel feedstock compromises food security and negatively affect the environment. Single cell oils (SCOs), accumulated by oleaginous yeasts, show great promise for efficient production of biofuels. However, the high production costs attributed to feedstocks or raw materials present a major limiting factor. The fermentative conversion of abundant, low-value biomass into microbial oil would alleviate this limitation. Here, we explore the feasibility of utilizing microalgae-based cell residues as feedstock for yeast oil production. We developed an efficient, single‐step enzymatic hydrolysis to generate Scenedesmus obtusiusculus hydrolysate (SH) without thermo-chemical pretreatment. With this eco-friendly process, glucose conversion efficiencies reached 90–100%. Cutaneotrichosporon oleaginosus, Cryptococcus curvatus and Rhodosporidium toruloides were cultivated on SH as sole nutrients source. Only C. oleaginosus was able to accumulate intracellular lipids, with a 35% (g lipid/g DCW) content and a yield of 3.6 g/L. Our results demonstrate the potential valorization of algal biomass into desired end-products such as biofuels. Graphic Abstract