The prevalence of tetracycline (TC) in aquatic environments has raised increasing concern due to its high ecotoxicology risk. The application of microalgae in the removal of antibiotics is a competitive alternative technology. However, the removal mechanism of TC by microalgae and its correlation with the ecotoxic response of microalgae are still not clear. In this study, the ecotoxicity of TC (0.5–10 mg L−1) and its removal by the freshwater alga Chlorella pyrenoidosa were investigated. The results show that TC has significant inhibitory effects on microalgal growth, photosynthetic pigment, and photosynthetic efficiency, with maximum inhibition rates of 49.68%, 62.54%, and 48.08%, respectively. However, the growth inhibition and photosynthesis impairment caused by TC seems to be reversible, as reflected by the decreased inhibition rates with prolonged exposure time. The simultaneous increases in the activities of superoxide dismutase (9.69–23.53%) and peroxidase (15.15–110.92%) and the contents of glutathione (17.62–64.17%) and malondialdehyde (25.16–35.25%) suggest that TC causes moderate oxidative stress. C. pyrenoidosa exhibits high removal efficiency (91.44–95.14%) for TC after 48 h of exposure with short half-lives of 11.31–13.48 h. Biodegradation (56.86–64.62%) is the primary removal mechanism of TC, accompanied by the abiotic process (24.68–40.97%), bioaccumulation (1.95–10.97%), and bioadsorption (0.09–0.38%). These findings demonstrate the toxicity resistance and high removal capacity of C. pyrenoidosa to TC, highlighting its potential application in the remediation of TC-contaminated water.