The contamination of aquatic systems with arsenic (As) is considered to be an internationally-important health and environmental issue, affecting over 115 countries globally. Arsenic contamination of aquatic ecosystems is a global threat as it can enter the food chain from As-rich water and cause harmful impacts on the humans and other living organisms. Although different factors (e.g., pH, redox potential, iron/manganese oxides, and microbes) control As biogeochemical cycling and speciation in water systems, the significance of algal species in biotransformation of As is poorly understood. The overarching attribute of this review is to briefly elaborate various As sources and its distribution in water bodies and factors affecting As biogeochemical behavior in aqueous ecosystems. This review elucidates the intriguing role of algae in biotransformation/volatilization of As in water bodies under environmentally-relevant conditions. Also, we critically delineate As sorption, uptake, oxidation and reduction pathways of As by algae and their possible role in bioremediation of As-contaminated water (e.g., drinking water, wastewater). The current review provides the updated and useful framework for government and water treatment agencies to implement algae in As remediation programs globally.