Seaweed (marine macroalgae) cultivation and hydrocolloids industries can contribute significantly to sustainable development and bio-economy. However, there has been a lack of study on the environmental impacts of agar manufactured from macroalgae. This study is one of the first attempts to analyze environmental sustainability of agar extracted from Gracilaria lemaneiformis using an integrated method of life cycle assessment (LCA) and environmental profit and loss (EP&L). The “cradle-to-gate” life cycle stages are considered, namely, seaweed cultivation, transportation, agar production, and waste treatment. Two scenarios are conducted to explore the different production methods of agar. Results reveal that the carbon sequestration during the seaweed cultivation stage of agar amounts to 7.21 kgCO2eq/kg, and the net “cradle-to-gate” carbon emission of agar is −1.11 kgCO2eq/kg. The cultivation of seaweed can also benefit the marine environment through the removal of nitrogen, phosphorus, and heavy metals. In addition, the environmental impacts of agar production in China are converted into monetary values and estimated as total external costs based on EP&L. The comparative analysis elucidates a reduced environmental loss of 667 CNY in Scenario 2, while the external cost of Scenario 1 is 1020 CNY, indicating the environmental impact of Scenario 2 is reduced due to the improved process of agar production. As one of the first systematic LCA studies of seaweed cultivation and agar manufacturing, this work promotes the understanding of the environmental sustainability of seaweed hydrocolloid industry.