Abstract Utilising novel ingredients in aquafeeds is necessary for the continued expansion and intensification of aquaculture production. Microalgae are utilised widely in aquaculture for a variety of purposes; as live feed for fish and shellfish larvae and juveniles, for the production of algae‐based meals and oils to replace marine derived raw materials in aquafeeds, and for the production of astaxanthin, the carotenoid that gives salmon flesh its characteristic reddish colour. Notably, long‐chain polyunsaturated fatty acids, amino acids, proteins, fibres, antioxidant pigments, vitamins and minerals are among the compounds in microalgae with great biological value. A growing collection of experimental data has demonstrated that these substances are crucial for increasing larval survival and enhancing the growth and well‐being of fish and shellfish. In this review, the processing of microalgae utilised as aquafeed ingredient, the health promoting compounds in microalgae and their role in growth, immunity and disease resistance of fish and shellfish are described and discussed. Simultaneously, major hurdles in the commercial use of microalgae in aquafeed, and future research and development perspectives are all critically discussed.