Microbial fuel cells (MFCs) are currently being researched as alternative energy sources with promising applications in wastewater treatment. However, in two-chamber designs, cathodic oxygen reduction is slow and limits MFC voltage. Biocathodes, cathodes containing microorganisms, show great promise for improving MFC performance. This study investigated how the microalgae Nannochloropsis affects cathodic oxygen reduction via a thermodynamic analysis of energy losses. Voltage, cathode pH, and cathode pO2 (partial pressure of oxygen) were measured in experimental MFCs containing Nannochloropsis biocathodes and compared to controls containing distilled water or abiotic algae media catahodes. Isolated Nanochloropsis cultures were also assayed. Under open circuit conditions, cathodic energy losses in experimental MFCs were 15% (p = 0.038597) and 19% (p = 0.042435) lower than distilled water and algae media controls, respectively. Experimental MFCs produced 73% higher power at 37% higher current density than distilled water MFCs. While the pH and pO2 of isolated Nannochloropsis cultures increased linearly each day, these measurements were constant in experimental MFC cathodes. This result suggests that participation in oxygen reduction reactions induces a change in Nannochloropsis metabolism, leading to reduced oxygen production and limiting pH changes. Taken together, this work presents a promising new type of two-chambered MFC with lower energy losses and greater power production that can also maintain a constant cathode pH and reveals a new behavior of Nannochloropsis algae in response to oxygen reduction reactions in such MFCs.