Carotenoids are lipid-soluble pigments synthesized only in plants, fungi, and certain microorganisms and serve important functions in cellular responses to oxidative stress. In humans, carotenoids perform several therapeutic functions, such as antioxidant effects that include singlet oxygen quenching, prevention of age-related macular degeneration and cardiovascular disease, and immunomodulatory, antitumor, and anticarcinogenesis activity. Microalgae are ideal cell factories for producing high-value carotenoids, as they combine fast growth with an active isoprenoid production pathway and intracellular storage. Potential bio-product markets range from feed additives in aquaculture/agriculture to pharmaceutical applications. Microalgal carotenoid production is influenced by several environmental factors, which can be used to improve productivities, a vital economic aspect. Due to the complexity of functional responses, a solid understanding of carotenogenesis and environmental conditions that generate reactive oxygen species is required. Consequently, we provide a brief overview of carotenogenesis, followed by a concise treatise of carotenoid function, reactive oxygen scavenging mechanisms, and factors that tune carotenoid synthesis. We conclude by reviewing the nutraceutical potential of specific carotenoid groups, their therapeutic benefits and economic potential, in light of steadily decreasing acceptance of food enrichment with synthetic additives.