To clearly understand the environmental impacts of algae-based desalination system, a life cycle assessment is undertaken by comparing four different scenarios: (1) multi-stage microalgae based desalination system without algal biomass reuse; (2) multi-stage microalgae based desalination system with algal biomass reuse; (3) hybrid desalination system with microalgae as the pre-treatment for Low Pressure Reverse Osmosis; and (4) conventional Seawater Reverse Osmosis system. It is suggested that scenarios 2 and 4 have the overall lowest and highest environmental impacts, respectively. This phenomenon is probably caused by the lower energy consumption and lower operational and maintenance requirements of high rate algal pond system. Furthermore, scenario 2 considers the algal biomass reuse to generate electricity through anaerobic digestion, which could offset the environmental impacts. It is also identified that the operational phase contributes approximately 50–60% of the total environmental impact in most impact categories for algae-based desalination system, however, the operational phase contributes around 70–80% of the total environmental impact for membrane based desalination system. A sensitivity study is undertaken to evaluate the effects of three key design parameters on environmental impact in global warming impact category. It is identified that the total dissolved solids removal efficiency of high rate algal pond plays the most important role in determining the potential environmental impacts of different scenarios. This study clearly shows that scenario 2 of multi-stage microalgae based desalination system with algal biomass reuse is the most environmentally friendly desalination approach.