The wide application of manufactured nanomaterials (MNMs) has resulted in the inevitable release of MNMs into the aquatic environment along their life cycle. As the primary producer in aquatic ecosystems, algae play a critical role in maintaining the balance of ecosystems’ energy flow, material circulation and information transmission. Thus, thoroughly understanding the biological effects of MNMs on algae as well as the underlying mechanisms is of vital importance. We conducted a comprehensive review on both positive and negative effects of MNMs on algae and thoroughly discussed the underlying mechanisms. In general, exposure to MNMs may adversely affect algae’s gene expression, metabolites, photosynthesis, nitrogen fixation and growth rate. The major mechanisms of MNMs-induced inhibition are attributed to oxidative stress, mechanical damages, released metal ions and light-shielding effects. Meanwhile, the rational application of MNMs-algae interactions would promote valuable bioactive substances production as well as control biological and chemical pollutants. Our review could provide a better understanding of the biological effects of MNMs on algae and narrow the knowledge gaps on the underlying mechanisms. It would shed light on the investigation of environmental implications and applications of MNMs-algae interactions and meet the increasing demand for sustainable nanotechnology development.