The concept of using microalgae as an alternative renewable source of biofuel has gained much importance in recent years. However, its commercial feasibility is still an area of concern for researchers. Unraveling the fatty acid metabolic pathway and understanding structural features of various key enzymes regulating the process will provide valuable insights to target microalgae for augmented oil content. FabH (β-ketoacyl-acyl carrier protein synthase; KAS III) is a condensing enzyme catalyzing the initial elongation step of type II fatty acid biosynthetic process and acyl carrier protein (ACP) facilitates the shuttling of the fatty acyl intermediates to the active site of the respective enzymes in the pathway. In the present study, a reliable three-dimensional structure of FabH from Chlorella variabilis, an oleaginous green microalga was modeled and subsequently the key residues involved in substrate binding were determined by employing protein–protein docking and molecular dynamics (MD) simulation protocols. The FabH-ACP complex having the lowest docking energy score showed the binding of ACP to the electropositive FabH surface with strong hydrogen bond interactions. The MD simulation results indicated that the substrate-complexed FabH adopted a more stable conformation than the free enzyme. Further, the FabH structure retained its stability throughout the simulation although noticeable displacements were observed in the loop regions. Molecular simulation studies suggested the importance of crucial hydrogen bonding of the conserved Arg91 of FabH with Glu53 and Asp56 of ACP for exhibiting high affinity between the enzyme and substrate. The molecular modeling results are consistent with available experimental results on the flexibility of FabH and the present study provides first in silico insights into the structural and dynamical aspect of catalytic mechanism of FabH, which could be used for further site-specific mutagenic experiments to develop engineered high oil-yielding microalgal strains for biofuel production.