Urban wastewater contains both organic and inorganic nutrients and discharge of untreated water increases nitrogen and phosphorous content in water bodies leading to eutrophication problem. Physical and chemical treatment of urban waste water produces large quantities of waste sludge associated with secondary pollution. Microalgae can assimilate nutrients especially nitrogen and phosphorous from wastewater for their growth and produce valuable biomass and lipid. This study was performed to determine the growth of Chlorella vulgaris in urban wastewater (UWW) and Bold's basal medium (BBM) thereby identifying cost effective growth medium for microalga cultivation. In addition, nutrient removal abilities of C. vulgaris from various dilutions of urban waste water were explored at 10 days cultivation period. Specific growth rate, biomass and lipid content were higher in microalgae grown in urban waste water than BBM. The highest lipid productivity of 14.31 mg· L −1 ·day −1 was achieved in the culture grown in UWW medium which exceeded the BBM at 1.15 fold. The amount of nutrient removal tended to increase with higher dilutions of UWW. Removal rates of upto 87.9% and 98.4%were recorded for total nitrogen and total phosphorous by C. vulgaris. The results emphasized that urban waste water as a cost effective growth medium for higher biomass and lipid production accompanied with the nutrient removal efficiency of microalgae to reduce eutrophication.