The present research investigates potential of microalgae isolated from sewage treatment plant to utilize sodium bicarbonate as carbon source for CO2 sequestration and biodiesel production. Eight algal isolates were isolated from waste water of sewage treatment plant, Amity University Haryana, India. The most potent algal isolates were identified and characterized on the basis of growth and lipid content. The efficient isolates ASW1 and ASW2 were identified as Chlorella sp. and Arthronema sp. by 18srRNA and 16srRNA sequencing method. In both isolates, maximum growth was observed under 20-W fluorescent bulb (3500 flux light intensity) with continuous light cycle of 24h at pH9.0 and 25°C on the 20th day of incubation period. CO2 utilization efficiency of both algal isolates were observed in terms of total CO2 consumption rate. Under optimized culture conditions, total lipid content and lipid yield was higher in Arthronema sp. (180mgl-1; 32.14%) as compared to Chlorella sp. (98mgl-1; 29.6%) in 50mM NaHCO3. Transesterified lipids were analysed by GC-MS. The fatty acid methyl ester profile of Arthronema sp. was 34.42% saturated and 65.58% unsaturated fatty acid. Chlorella sp. produces 29.80% saturated and 70.20% unsaturated fatty acid. In both isolates, C16 and C18 fatty acids dominated, which is a promising component for biodiesel. Graphical abstract.