Municipal wastewater (MWW) or urban wastewater (UWW) is generated by the domestic consumption of freshwater, which contains a huge amount of nutrients. The release of unprocessed wastewater causes eutrophication and harms aquatic life. Moreover, ingestion of polluted MWW causes a severe negative impact on human health. Microalgae are unicellular, eukaryotic photosynthetic organisms and have the capability of nutrient assimilation in the presence of light. Moreover, the produced biomass can be used for the generation of value‐added bioproducts such as bioenergy. However, conventional microalgae‐based MWW treatment is not as sustainable on a commercial scale. Therefore, more advanced approaches using microalgae need to be integrated in wastewater cultivation systems to improve nutrient removal efficiency. Thus, the present review explores the use of microalgae for the removal of nutrients from MWW, provides an outlook of direct and indirect methods of nutrient uptake from wastewater and the effects of the influencing factors in biomass growth. Moreover, the review also gives insight into recent approaches used for MWW treatment and the applications of algal biomass resulting from treated wastewater. It is predicted that microalgae‐based MWW treatment systems will be a significant green approach to help eliminate nutrient loads and implement circular economy.