Microalgae provide various potential advantages for biofuel production when compared with 'traditional' crops. Specifically, large-scale microalgal culture need not compete for arable land, while in theory their productivity is greater. In consequence, there has been resurgence in interest and a proliferation of algae fuel projects. However, while on a theoretical basis, microalgae may produce between 10- and 100-fold more oil per acre, such capacities have not been validated on a commercial scale. We critically review current designs of algal culture facilities, including photobioreactors and open ponds, with regards to photosynthetic productivity and associated biomass and oil production and include an analysis of alternative approaches using models, balancing space needs, productivity and biomass concentrations, together with nutrient requirements. In the light of the current interest in synthetic genomics and genetic modifications, we also evaluate the options for potential metabolic engineering of the lipid biosynthesis pathways of microalgae. We conclude that although significant literature exists on microalgal growth and biochemistry, significantly more work needs to be undertaken to understand and potentially manipulate algal lipid metabolism. Furthermore, with regards to chemical upgrading of algal lipids and biomass, we describe alternative fuel synthesis routes, and discuss and evaluate the application of catalysts traditionally used for plant oils. Simulations that incorporate financial elements, along with fluid dynamics and algae growth models, are likely to be increasingly useful for predicting reactor design efficiency and life cycle analysis to determine the viability of the various options for large-scale culture. The greatest potential for cost reduction and increased yields most probably lies within closed or hybrid closed-open production systems.