The environmental contamination produced by heavy metals has increased rigorously due to rapid industrialization, agricultural, and anthropogenic activities, and it has become a serious concern lately. Heavy metal such as mercury is toxic beyond a certain level and has proven to be fatal in many cases. Hence it has become very important to monitor the level of contamination produced by mercury in environmental and water samples. Biosensors are used to detect the presence of mercury in water. A microbial biosensor is a scientific device in which microorganisms are immobilized on a transducer so that they can detect a particular analyte. Microorganisms such as bacteria and yeast have proven to be potential components for designing microbial biosensors. Currently, genetically engineered microorganisms are used to design microbial biosensors by fusing lux, gpf, or lacZ gene reporter to a gene promoter and are used to determine the toxicity of heavy metals in water. Microbial biosensors are more efficient and have a wider range of detection compared to other conventional biosensors. In this review paper, we have discussed the basic principles and limit of detection of the microbial biosensors that are used for the detection of mercury in water solutions.