Bio‐oil derived from fast pyrolysis of lignocellulosic biomass contains various substrates that can be fermented to fuels and chemicals. The goal of this research was to utilize an acetic acid‐rich fraction of bio‐oil for the growth and lipid production by microalga Chlamydomonas reinhardtii. As toxic compounds are contained in the bio‐oil, the algae cannot survive in medium containing this bio‐oil fraction even at a low level (0.05 wt %). An alkali‐based treatment with sodium hydroxide was used to reduce the toxicity and enhance its fermentability by microalgae. It was found that treating the acetic acid‐rich bio‐oil fraction by adjusting pH to 10 greatly improved the algal growth. The algae can thrive in medium containing 4 wt % alkali‐treated bio‐oil fraction. When using a metabolic‐evolved strain with high level of toxicity tolerance, the algae were even capable of growing in medium containing 5.5 wt % bio‐oil fraction, which replaced 100% of the acetic acid in the medium. The algal biomass grown in medium containing alkali‐treated bio‐oil fraction exhibited fatty acid profiles similar to the culture grown in pure acetic acid, but with a lower total fatty acid content. but the total fatty acid content (∼10% DW) was lower than that of the control (∼20% DW).The benefit of alkali treatment for enhancing algal growth was confirmed to be due to the removal of toxic compounds such as furfural, acetol, phenolics, and 5‐hydroxymethylfurfural (HMF). Collectively, the results showed that fast pyrolysis‐microalgal fermentation is a viable approach for producing lipid from lignocellulosic biomass. Alkali‐based treatment is an effective method for reducing bio‐oil toxicity, and thereby, greatly enhancing the algae fermentability of bio‐oil. © 2013 American Institute of Chemical Engineers Environ Prog, 32: 955–961, 2013