Cyanobacteria (blue-green algae) are photosynthetic prokaryotes used as food by humans. They have also been recognized as an excellent source of vitamins and proteins and as such are found in health food stores throughout the world. They are also reported to be a source of fine chemicals, renewable fuel and bioactive compounds. This potential is being realized as data from research in the areas of the physiology and chemistry of these organisms are gathered and the knowledge of cyanobacterial genetics and genetic engineering increased. Their role as antiviral, anti-tumour, antibacterial, anti-HIV and a food additive have been well established. The production of cyanobacteria in artificial and natural environments has been fully exploited. In this review the use of cyanobacteria and microalgae, production processes and biosynthesis of pigments, colorants and certain bioactive compounds are discussed in detail. The genetic manipulation of cyanobacteria and microalgae to improve their quality are also described at length.