This study was directed towards evaluating the potential of microalgae for simultaneous wastewater treatment, CO2 biofixation and lipid biosynthesis for biofuel application. The cultivation potential of various microalgal species in domestic wastewater (DWW) was studied in shake-flasks. The microalga, Scenedesmus sp. showed superior results in terms of the maximum specific growth rate of 0.44d−1, biomass yield of 0.43gL−1, biomass productivity of 61.4mgL−1d−1 and total lipid content of 23.1%. Subsequently, the performance evaluation of Scenedesmus sp. with respect to biomass growth, lipid accumulation, CO2 biofixation rate and nutrient uptake was carried out at different CO2 concentrations in a photobioreactor. The culture supplemented with 2.5% (v/v) CO2 was found most suitable and resulted in highest biomass productivity, total lipid content, lipid productivity, and CO2 consumption rate of 196mgL−1d−1, 33.3%, 65.17mgL−1d−1 and 368mgL−1d−1, respectively. The microalga could bioremediate ammonium, nitrate, phosphate and chemical oxygen demand (COD) efficiently from the wastewater to the extent of 70–98%. The FAME composition of the microalgal lipid was found encouraging for biodiesel application as saturated: unsaturated fatty acid ratio was favorable to about 1.2:1. The study indicates that Scenedesmus sp. can efficiently utilize DWW for its growth instead of using synthetic culture medium and can produce a significant amount of biomass at 2.5% CO2 for biofuel application.