Cyanobacteria grown on dairy effluent is a valuable source of low-budget production of lipid for biofuel and effluent treatment. Approximately 2-3 times greater amount of effluent generates for processing one liter of milk with high amount of organic & inorganic compound it can form to excess growth of algae, effect on biodiversity and decreased water quality level that may affect human and animal health. Technologies are available for removing these nutrients by chemical and physical means but requirement of energy and chemicals is greater, however, it increases cost of treatment. Cyanobacteria has capacity to utilize these inorganic nutrient such as N & P, it decrease the cost of removal pollutants and more easily collected biomass from treated effluent and become less expensive for biofuel production. The total quantity of lipid present in biomass ranged from 9% to 30%. The techniques for recovery of lipid from biomass by thermochemical liquefaction, pyrolysis and gasification and supercritical carbon dioxide extraction. Worldwide oil consumption is expected to 104 million barrels per day in 2030 from 86 million barrels per day in 2007, so we find the alternative with help of Cyanobacterial based biofuel production. Increase efficiency of cyanobacteria for lipid production with genetic engineering incorporation of specific gene which responsible for high lipid production.