The utilization of algae in aquaculture is environmentally friendly, safe, and cost-effective and can effectively substitute for fish meal and fish oil in aquatic feeds. Incorporating algae as dietary supplements leads to significant enhancements in aquatic animals’ health and also improves the aquatic ecosystem. Algae are rich sources of nutrients and serve as the foundational food source in the aquatic food chain. Currently, 40 different algae species are employed in aquaculture. Furthermore, algae contributes to elevating the overall quality of aquatic feed products. Aquaculture stands as the most vital food production sector globally; however, challenges such as infection outbreaks and aquatic environmental pollution pose significant threats to the sustainable growth of this industry. An alternative strategy for mitigating environmental issues and improving aquatic production involves the utilization of algae. The novelty in the applications of algae in aquaculture stems from their multifaceted roles and benefits, such as their capacity to improve water quality, serve as nutrient-rich feed supplements, and enhance the overall health and productivity of aquatic species. These versatile applications of algae represent a fresh and innovative approach to sustainable aquaculture practices. This review furnishes insights into the use of algae, algae extracts, or components derived from algae to enhance water quality. Additionally, it covers the utilization of algae-based feed supplements, boosting of the immune system, enhanced growth performance, and disease resistance in aquatic animals.