Green synthesis of nanoparticles (NPs) has emerged as an eco-friendly alternative to produce nanomaterials with diverse physical, chemical, and biological characteristics. Previously used, physical and chemical methods involve the production of toxic byproducts, costly instrumentation, and energy-intensive experimental processes thereby, limiting their applicability. Biogenic synthesis of nanoparticles has come forward as a potential alternative, providing an eco-friendly, cost-effective, and energy-efficient approach for the synthesis of a diverse range of NPs. Several biological entities are employed in the biosynthesis of NPs including bacteria, fungi, and algae. However, the distinguishing characteristics of microalgae and cyanobacteria make them promising candidates for NPs synthesis because of their higher growth rate, substantially higher rate of sequestering CO₂, hyperaccumulation of heavy metals, absence of toxic byproducts, minimum energy input, and employment of biomolecules (pigments and enzymes) as reducing and capping agents. Algal extract, being a natural reducing and capping agent, serves as a living cell factory for the efficient green synthesis of nanoparticles. Physiological and biological methods allow algal cells to uptake heavy metals and utilize them as nutrient source to generate biomass by regulating their metabolic processes. Despite their enormous potential, studies on the microalgae-based synthesis of nanoparticles for the removal of toxic pollutants from wastewater remained an unexplored research area in the literature. This review was aimed to summarize the recent advancements and prospects in the algae-based synthesis of nanoparticles for environmental applications particularly treating the wastewater.