Increasing concentrations of carbon dioxide (CO2), one of the important greenhouse gases, due to combustion of fossil fuels, particularly burning coal, have become the major cause for global warming. As a consequence, many research programs on CO2 management (capture, storage, and sequestration) are being highlighted. Biological sequestration of CO2 by algae is gaining importance, as it makes use of the photosynthetic capability of these aquatic species to efficiently capture CO2 emitted from various industries and converting it into algal biomass as well as a wide range of metabolites such as polysaccharides, amino acids, fatty acids, pigments, and vitamins. In addition, their ability to thrive in rugged conditions such as seawater, contaminated lakes, and even in certain industrial wastewaters containing high organic and inorganic nutrients loads, has attracted the attention of researchers to integrate carbon capture and wastewater treatment. Algae offer a simple solution to tertiary treatments due to their nutrient removal efficiency, particularly inorganic nitrogen and phosphorus uptake. The algal–bacterial energy nexus is an important strategy capable of removing pollutants from wastewater in a synergistic manner. This review article highlights the mechanism involved in biological fixation of CO2 by microalgae, their cultivation systems, factors influencing algal cultivation in wastewater and CO2 uptake, the effect of co-cultivation of algae and bacteria in wastewater treatment systems, and challenges and opportunities.