Commercial-scale production of biofuels has recently been intensified due to its cost-effectiveness, sustainability, market stability, alternative fuel energy composition and greener output, etc. Lignocellulosic biomass attracted the attention of researchers as a renewable feedstock for fermentative conversion into biofuels because of its high productivity, low agricultural input requirements, being environmentally friendly and no competition with the food crops. The field of bioenergy is rapidly evolving with discoveries that are being reported daily. In this review, the economical production of biofuels using different feedstocks and bioprocessing strategies with the aim of integral utilization of agricultural or organic wastes are discussed. This review also highlights the potential of pyrolytic oil as fermentable substrates for different types of microbes (yeast, bacteria and algae) to generate biofuels. Although there is continuous technologic improvement for cost reduction in biomass conversion by microbial fermentation. Still, there are many techno-economic challenges such as recalcitrant nature of substrates, removal of inhibitors, metabolic engineering of microbial strains and detoxification strategies for the elimination of inhibitors. So, this review also summarizes some of these major challenges that should be addressed to make biofuel production cost effective.