The scarcity of water resources and environmental pollution have highlighted the need for sustainable wastewater treatment. Existing conventional treatment systems are energy-intensive and not always able to meet stringent disposal standards. Recently, algal-bacterial systems have emerged as environmentally friendly sustainable processes for wastewater treatment and resource recovery. The algal-bacterial systems work on the principle of the symbiotic relationship between algae and bacteria. This paper comprehensively discusses the most recent studies on algal-bacterial systems for wastewater treatment, factors affecting the treatment, and aspects of resource recovery from the biomass. The algal-bacterial interaction includes cell-to-cell communication, substrate exchange, and horizontal gene transfer. The quorum sensing (QS) molecules and their effects on algal–bacterial interactions are briefly discussed. The effect of the factors such as pH, temperature, C/N/P ratio, light intensity, and external aeration on the algal-bacterial systems have been discussed. An overview of the modeling aspects of algal-bacterial systems has been provided. The algal-bacterial systems have the potential for removing micropollutants because of the diverse possible interactions between algae-bacteria. The removal mechanisms of micropollutants–sorption, biodegradation, and photodegradation, have been reviewed. The harvesting methods and resource recovery aspects have been presented. The major challenges associated with algal-bacterial systems for real scale implementation and future perspectives have been discussed. Integrating wastewater treatment with the algal biorefinery concept reduces the overall waste component in a wastewater treatment system by converting the biomass into a useful product, resulting in a sustainable system that contributes to the circular bioeconomy. © 2022 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.