In the context of algal wastewater bioremediation, this study has identified a novel consortium formed by the bacterium Methylobacterium oryzae and the microalga Chlamydomonas reinhardtii that greatly increase biomass generation (1.22 g L⁻¹·d⁻¹), inorganic nitrogen removal (>99%), and hydrogen production (33 mL·L⁻¹) when incubated in media containing ethanol and methanol. The key metabolic aspect of this relationship relied on the bacterial oxidation of ethanol to acetate, which supported heterotrophic algal growth. However, in the bacterial monocultures the acetate accumulation inhibited bacterial growth. Moreover, in the absence of methanol, ethanol was an unsuitable carbon source and its incomplete oxidation to acetaldehyde had a toxic effect on both the alga and the bacterium. In cocultures, both alcohols were used as carbon sources by the bacteria, the inhibitory effects were overcome and both microorganisms mutually benefited. Potential biotechnological applications in wastewater treatment, biomass generation and hydrogen production are discussed.