Algae are a diverse group of aquatic organisms and have a potential to produce renewable biofuel via hydrothermal liquefaction (HTL). This study investigated the effects of reaction environments on biocrude production from “Tetraselmis sp.” algae strain by HTL process using red mud (RM) based catalyst. The inert (N2), ethylene (C2H4), reducing (10% H2/90% N2), and oxidizing (10% O2/90% N2) environments were applied to the non-catalytic as well as catalytic HTL treatments with two forms of RM catalysts: RM reduced at 500 °C (RRM) and nickel-supported RM (Ni/RM). Under nitrogen, ethylene and reducing environments, the biocrude yield increased by the following trend: No Catalyst < RRM < Ni/RM. The Ni/RM catalyst produced the highest biocrude yield (37 wt.%) in an ethylene environment, generated the lowest total acid number (14 mg KOH/g) under inert atmosphere, and lowered sulfur (33−66%) and oxygen (18−30%) from biocrude products irrespective of environments. The RRM catalyst maximized the biocrude carbon content (61 wt.%) under a reducing environment and minimized the heavy metal and phosphorus transfer from the feedstock to biocrude in studied ambiences. The reducing environment facilitated mild hydrotreatment during HTL reaction in the presence of RRM catalyst. Among the non-catalytic experiments, the reducing atmosphere optimized carbon content (54.3 wt.%) and calorific value (28 MJ/kg) with minimum oxygen amount (27.2 wt.%) in biocrudes.