Microalgae are promising bioresources that have garnered attention over the last decade due to its versatile environmental applications. For substantial biomass generation, it is imperative to relegate cost associated with algal cultivation. Biochar was synthesized and added as a component of nutrient source for cultivation of Chlorella pyrenoidosa (Cp) in an aqueous solution of Direct Red 31 (DR 31; diazo) dye to analyze its impact on biomass production, dye decolorization, and lipid generation. Effect of dye concentration, contact time, biochar dosage and pH were investigated on biochar cultivated Cp cells (Biochar-Cp). Results revealed that adjunction of biochar not only promoted algal growth but also enhanced its decolorization efficiency as well as biofuel production. Biochar-Cp cells exhibited superior DR 31 decolorization (80.12%) after 180 min of contact time. Mechanisms of decolorization (adsorption and biodegradation) by Biochar-Cp cells were also investigated. Lipids were obtained out from the algal biomass after dye decolorization. Fatty acid methyl esters (FAMEs) study showed hexadecanoic acid and octadecenoic acids as the dominant fatty acids; the major prerequisites of a competent biofuel. The study reveals the potential application of waste sawdust derived biochar as an economical component of a nutrient source in algal cultivation for versatile environmental applications.