Biodiesel produced from microalgae has emerged as a sustainable alternative to fossil fuels, offering potential benefits for energy security and sustainability. This study focuses on the production and characterization of biodiesel from two prominent microalgal species, Chlorella sorokiniana and Chlorella vulgaris. A two-step harvesting approach combining chitosan-assisted flocculation and centrifugation was designed to enhance biomass recovery, achieving over 90% efficiency under optimized conditions. Conventional lipid extraction methods (Soxhlet and Bligh-Dyer) and an advanced microwave-assisted extraction technique were employed, yielding lipid contents of 25–35% dry weight, with microwave extraction reducing processing time by 40% compared to conventional methods. The extracted lipids were converted into biodiesel via transesterification, resulting in a Fatty Acid Methyl Esters (FAME) yield of 85–92%. The key physiochemical properties were analyzed, including biodiesel yield, density, kinematic viscosity, calorific value, and flash point. This study will investigate whether biodiesel produced from these microalgae meets ASTM and EN standards, evaluating their potential as viable feedstocks for biodiesel production. Additionally, a comprehensive environmental assessment using life cycle analysis (LCA) and carbon footprint evaluation will be conducted to quantify potential greenhouse gas emission reductions compared to conventional fossil fuels. However, challenges related to energy-intensive downstream processes need to be studied, emphasizing the need for further optimization to improve sustainability and economic viability. This study underscores the promise of Chlorella species as renewable feedstocks for biodiesel while addressing critical gaps in production efficiency and environmental impact mitigation.