Polyethylene Terephthalate (PET) is a type of plastic largely used for packing food and beverages. Unfortunately, it includes a major portion of the plastic distributed through aquatic systems wherever systematic collection and recycling are lacking. Although PET is known to be non-toxic, it is not obvious whether the nanoparticles (NPs) formed due to their degradation have any direct/indirect effect on aquatic organisms. In order to study the effects on aquatic environment, fresh water algae Chlorella vulgaris was subjected to incremental concentrations of the NPs. We observed a concentration and duration of exposure dependent decrease in algal growth rate along with reduced total chlorophyll content. Scanning electron microscopy revealed deformities in cell shape and the uptake of Propidium Iodide suggested membrane damage in response to NP exposure. Intracellular Reactive Oxygen Species level was also found significantly higher, evidenced by Dichlorodihydrofluorescein diacetate staining. Activity of antioxidant enzymes Superoxide dismutase (SOD), Peroxidase (POD) and Catalase (CAT) were significantly higher in the NP exposed groups suggesting the cellular response to regain homeostasis. Further, expression levels of the genes psaB, psbC, and rbcL associated with photosynthesis increased above two fold with respect to the control inferring the possibility of damage to photosynthesis and the initial molecular responses to circumvent the situation. In short, our studies provide evidence for oxidative stress mediated cellular damages in Chlorella vulgaris exposed to NPs of PET.