Harmful cyanobacterial blooms (HCB) have severe impacts on marine and freshwater systems worldwide. They cause oxygen depletion and produce potent cyanotoxins that have detrimental effects on human and environmental health and deteriorate the water quality. Biological treatment of the water for control of cyanobacterial blooms and removal of cyanotoxins can be a more economical and environment-friendly way, as they do not result in production of undesirable by-products. Most biological treatments of cyanobacteria and cyanotoxins have concentrated largely on bacteria, with little attention paid to algicidal fungi. Therefore, this review aims to provide an overview of the current status and the main progresses achieved in fungal biodegradation of HCB and cyanotoxin research. The available data revealed that 15 fungal species had high lytic activity against cyanobacteria, and 6 species were capable of degrading microcystins (MCs). Some fungal species (e.g., Aurobasidium pullulans and Trichoderma citrinoviride) have been identified to selectively inhibit the growth of cyanobacteria rather than beneficial species of other algal groups. Interestingly, some fungal strains (Trichaptum abietinum, Trichoderma citrinoviride) exhibited di-functional trait, being efficient in lysing cyanobacteria and degrading MCs released from the cells after decay. Beyond a comprehensive review of algicidal and toxin-degrading activities of fungi, this paper also identifies and prioritizes research gaps in algicidal fungi. The review also gives insights to the potential applications of algicidal fungi for removal of cyanobacterial blooms and their cyanotoxins from the aquatic environment.