Microalgae are regarded as a rich trove of diverse secondary metabolites that exert remarkable biological activities. In particular, microalgae‐derived bioactive phenolic compounds (MBPCs) are a boon to biopharmaceutical and nutraceutical industries due to their diverse bioactivities, including antimicrobial, anticancer, antiviral, and immunomodulatory activities. The state‐of‐the‐art green technologies for extraction and purification of MBPCs, along with the modern progress in the identification and characterization of MBPCs, have accelerated the discovery of novel active pharmaceutical compounds. However, several factors regulate the production of these bioactive phenolic compounds in microalgae. Furthermore, some microalgae species produce toxic phenolic compounds that negatively impact the aquatic ecosystem, animal, and human life. Therefore, the focus of this review paper is to bring into light the current innovations in bioprospection, extraction, purification, and characterization of MBPCs. This review is also aimed at a better understanding of the physicochemical factors regulating the production of MBPCs at an industrial scale. Finally, the present review covers the recent advances in toxicological evaluation, diverse applications, and future prospects of MBPCs in biopharmaceutical industries.