Biodiesel is currently receiving much attention as a potential replacement for conventional automotive fuel. The rapid depletion of fossil fuels has sparked interest in developing algae biodiesel for use as a renewable energy source. This article reviews and emphasizes the physical and chemical aspects of algae biodiesel, in addition to their effect on engine performance, combustion, and emission characteristics with and without additives, as well as wear, corrosion, and deposit formation on engine parts. Using algae biodiesel leads to poor engine performance due to its low calorific value and high viscosity while minimizing carbon monoxide, hydrocarbon, and particulate matter emission but increasing oxides of nitrogen (NOx) emissions. However, the inclusion of nanoadditives with algae biodiesel blends results in enhanced engine performance, combustion characteristics, calorific value, and cetane number while reducing emissions, including NOx. Unsaturated molecules, free fatty acids, and oxygenated algae biodiesel components are particularly reactive with metallic surfaces, leading to corrosion. Corrosion, wear and deposits cause significant concerns regarding the long-term sustainability of the engine hardware. Nonetheless, unlike first and second-generation biodiesel, algae biodiesel will become the source for fulfilling the fuel demand because of their higher yield percentage without affecting the food supply, forests, or farmland.