The rising cost of traditional feedstock for the biofuels industry has led to an increasing interest in algae as a possible supplemental if not replacement feedstock. One of the main hurdles of this becoming a reality is the costs associated with growing, harvesting and extracting oil and carbohydrates from the algae. Here the cost of growing and harvesting the algae is addressed with a novel external loop airlift reactor. A reactor was designed to maximize the light penetration into the interior of the reactor in order to operate at the optimal optical density for the algal growth. This design includes the use of submersible fiber optics and a procedure for partial harvesting and addition of growth medium to maintain the required optical density. The flow characteristics in the reactor were also studied and modified to reduce the shear stress effects on algal death. The operation of the reactor is automatically controlled to maintain not only the appropriate optical density, but also the dissolved CO2 and dissolved O2 concentrations, pH and temperature for the algal strain being grown.