This research aims to investigate the literature review on the extraction of algae oil, production of algae methyl ester(AME) biodiesel and the effect of microalgae biodiesel on the performance, combustion and exhaust emissions of diesel engine. The study dealt with researchers who published their reports between 2006 and 2020. Researches now concentrate on renewable energies, and biodiesel is one of those renewable energy sources. Biodiesel is a fuel similar to diesel and has many positive aspects such as quality, renewable energy, lower exhaust emissions and greater lubricity. In addition to the use of microalgae in the production of fuels, they are used in reducing CO2 of the atmosphere which in turn results in better air quality to breathe and cleaner environment. Many researchers have paid attention to produce biodiesel derived from microalgae that represents one of the oldest living creatures on the globe. However, by comparing with diesel, it has some drawbacks like lower heat content, higher density, viscosity, and NOx emissions. Optimization strategies is still recommended to fight the side effects of using biodiesel instead of original diesel fuel.