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• Microalgal biofuel is considered as promising renewable energy for transportation. • A supply chain model of microalgal biofuel is developed to minimize production costs. • Multiple microalgal species are considered in the supply chain design model. • A two-stage solution approach is proposed to reduce computational complexity. • Significant cost reduction is possible by averting underutilization of the capacity. This research suggests a three-stage model framework for the design of a microalgae-based biofuel supply chain to meet the goal of economic commercialization. First, the design stage decides the spatial layouts and dimensions of each scale of biorefineries and economic analyses are done to estimate the capital costs and operating costs for different design options. Using the spatial dimensions determined in the first stage, the second stage selects the candidate locations for the biorefineries using an geographic information system (GIS) based site evaluation. This stage screens the available land area for the biorefineries, and also reduces the computational burden of the latter stage. In the mathematical optimization stage, a mixed-integer linear programming optimization model is formulated to make multi-period strategic and tactical decisions of the supply chain under the total cost minimization objective. Since the formulated problem is computationally intensive, a two-stage decomposition solution strategy is proposed to solve the problem in a reasonable time. The model framework is demonstrated through a case study cast in Texas, U.S., with a time horizon of ten years, using the suggested decomposition method. As a result, the minimum fuel selling price (MFSP) of microalgae-based biodiesel is calculated as $10.92/gal biodiesel , which is about three times higher than the current biodiesel price $3.51/gal biodiesel. To reduce the cost, the strategies of biomass storage and maximum delivery are investigated to deal with the productivity fluctuation. In the scenario analysis, the underutilization of production capacities is alleviated resulting in reduced MFSP of $7.90/gal biodiesel , $7.92/gal biodiesel , and $7.43/gal biodiesel respectively. Clearly, for economic feasibility, the production cost should be further reduced by developing more cost-efficient technologies and integrating high-value coproducts into the biorefinery portfolio. [ABSTRACT FROM AUTHOR]