The world today is facing two major problems, of oil crisis and global warming; microalgae have been focused as living organisms that have high potential in solving both these problems by producing bio fuels and carbon sequestration. Aim of the study is to estimate physical and chemical parameters and to determine the algal diversity in ten lakes in the district of Hubli and Dharwad. Lipid content of algae will be analyzed. Physico-chemical analysis of lakes was done to check eutrophication of lakes by estimating the amount of physical factors like pH, turbidity, temperature, electrical conductivity and chemical parameters like alkalinity, calcium, magnesium, total hardness, potassium, sodium, phosphates, chloride, sulphate, nitrates, D.O, C.O.D, B.O.D present, which indeed serve as nutrients for the growth and proliferation of algal species. In this investigation, two lakes were found to be entropic and algal diversity present in all ten lakes were determined. About 20 different algal species were isolated and studied for lipid content. Out of this four species showed high potential for biofuel production.