Seawater flushing was introduced in Hong Kong since 1950’s. High salinity has an inhibitory effect on nitrification and biological phosphorus uptake of microorganisms. Therefore, saline sewage has impact on traditional biological wastewater treatment. Saline conditions of domestic wastewater then pose opportunity to use algal technology in wastewater treatment. During the treatment (phycoremediation), biodiesel can be produced. This study aims to give an in-depth investigation and development on application of local microalgal strains on biodiesel production. Dunaliella tertiolecta was selected the appropriate algal species with high potential for phycoremediation then biodiesel production. D.tertiolecta was further investigated by optimizing its growth in different process condition in preliminary effluent as based medium. The optimized process condition were acclimated culture with medium initial cell number (5.0 ×105 cells mL-1), under 5% CO2 aerations in preliminary effluent adjust to 15 psu (denoting practical salinity unit). Results showed that lipid content increased from 30.2% to 42%, and biomass productivity reached 463.3 mg L-1day-1 by Fatty acid Methyl Ester (FAME) profile was found for biodiesel production in optimized stage. The treatment period of preliminary effluent was shortened from 15d in original design (unacclimated culture, low initial cell number (5.0 ×105 cells mL-1), without CO2 aeration) to 4d.