The boost of the greenhouse gases (GHGs, largely carbon dioxide - CO2) emissions owing to anthropogenic activity is one of the biggest global threats. Bio-CO2 emission reduction has received more and more attention as an environmentally sustainable approach. Microalgae are very popular in this regard because of excellent speed of growth, low costs of production, and resistance to extreme environments. Besides, most microalgae can undergo photosynthesis, where the CO2 and solar energy can be converted into sugar, and subsequently become biomass, providing a renewable and promising biofuel strategy with a few outstanding benefits. This review focuses on presenting CO2 sequestration by microalgae towards wastewater treatment and biodiesel production. First, the CO2 fixation mechanism by microalgae viz., sequestration and assimilation of CO2 in green microalgae as well as cyanobacteria were introduced. Besides, factors affecting CO2 sequestration in microalgae, containing microalgae species and cultivation conditions, such as light condition, photobioreactor, configuration, pH, CO2 concentration, temperature, and medium composition, were then comprehensively discussed. Special attention was given to the production of biodiesel as third-generation biofuel from various wastewater (CO2 biofixation), including processing steps of biodiesel production by microalgae, biodiesel production from wastewater, and improved methods. Furthermore, current life cycle assessment (LCA) and techno-economic analysis (TEA) used in biodiesel production were discussed. Finally, the research challenges and specific prospects were considered. Taken together, this review provides useful and updated information to facilitate the development of microalgal "green chemistry" and "environmental sustainability".