Water is the pivotal resource on earth but with the continuous rise in anthropogenic activities has led to biological and chemical waste in water streams thereby contaminating the environment. Microalgae grown in the wide spectrum of wastewater could eliminate contaminants from industries and urban areas, but the research is in primary stage. The current study reflected the capability of isolated microalgae-associated industrial effluent treatment and lipid improvement for the application in biodiesel simultaneously. The microalga Coelastrella sp. KJ04 was cultivated on the industrial effluent released during the Senegalia catechu (Kattha) manufacturing. Response surface methodology-central composite design (RSM-CCD), a linear model tool was utilized in this study to optimize the concentration of the effluent (0–1000) mL L−1 with varying pH. Maximum biomass and lipid production of 0.3440 g L−1 and 4481 RFU respectively were observed at 853.40 mL L−1 effluent concentration and 7.70 pH. In contrast, the biomass and lipid production of 0.3240 g L−1 and 1477 RFU respectively were observed while using the BG-11 media as a control. A significant decrease in chemical oxygen demand (COD), total nitrogen (TN), total carbon (TC), total phosphorus (TP), sulphur (S), magnesium (Mg), and potassium (K) was observed and a nutrient removal efficiency of 55.83, 32.62, 37.50, 28.95, 31.66, 9.32, and 16.47% respectively was calculated in the industrial effluent. Hence, it is reported for the very first time that Coelastrella sp. KJ04 has an exorbitant competence for the consumption of inorganic and organic nutrients from kattha effluent, as an efficient treatment process. Additionally, the kattha effluent can serve as an economical replacement for expensive media in microalgae cultivation. Therefore, this study proposes a comprehensive strategy to cultivate the microalgae for wastewater treatment along with lipid production, which can be processed for biodiesel application. Graphical abstract: [Figure not available: see fulltext.] © 2023, The Author(s) under exclusive licence to Society for Plant Research.