Microalgae and cyanobacteria are photosynthetic microorganisms capable of removing nutrients from eutrophic waters and producing biomass. Therefore, the aim of this study was to evaluate the bioremediation performance of three microalgae and one cyanobacterium native to Lake Xochimilco and to assess their potential for biofuel production (biodiesel and biogas) from biomass generated. In photobioreactors, ammonium (96.61–97.06%), nitrate (82.4–100%), and phosphate (83.95–89.71%) were effectively removed from the lake water. The specific growth rates ranged from 0.041 to 0.144 d⁻¹ and biomass productivities from 0.016 to 0.049 g L⁻¹ d⁻¹, with high biomass yield on the substrate. The estimated CO₂ fixation rates ranged from 0.024 to 0.092 g L⁻¹ d⁻¹. Chlorella sp. achieved the highest yield of fatty acid methyl esters (FAMEs) with 91.24% of the extracted lipids. Overall, saturated FAMEs were predominant in the biodiesel; however, the presence of monounsaturated FAMEs such as methyl palmitoleate and methyl oleate enhances their fluidity and oxidative stability. Synechocystis sp. and Chlorella sp. produced the most biogas using biomass after lipid extraction, at 429.5 L kg⁻¹ VS and 404.9 L kg⁻¹ VS, respectively, with over 60% biomethane. These strains represent a sustainable and promising possibility for water bioremediation and generating biofuels.