The rising concentration of global atmospheric carbon dioxide (CO2) has severely affected our planet’s homeostasis. Efforts are being made worldwide to curb carbon dioxide emissions, but there is still no strategy or technology available to date that is widely accepted. Two basic strategies are employed for reducing CO2 emissions, viz. (i) a decrease in fossil fuel use, and increased use of renewable energy sources; and (ii) carbon sequestration by various biological, chemical, or physical methods. This review has explored microalgae’s role in carbon sequestration, the physiological apparatus, with special emphasis on the carbon concentration mechanism (CCM). A CCM is a specialized mechanism of microalgae. In this process, a sub-cellular organelle known as pyrenoid, containing a high concentration of Ribulose-1,5-bisphosphate carboxylase-oxygenase (Rubisco), helps in the fixation of CO2. One type of carbon concentration mechanism in Chlamydomonas reinhardtii and the association of pyrenoid tubules with thylakoids membrane is represented through a typical graphical model. Various environmental factors influencing carbon sequestration in microalgae and associated techno-economic challenges are analyzed critically.