Water scarcity due to contamination of water resources with different inorganic and organic contaminants is one of the foremost global concerns. It is due to rapid industrialization, fast urbanization, and the low efficiency of traditional wastewater treatment strategies. Conventional water treatment strategies, including chemical precipitation, membrane filtration, coagulation, ion exchange, solvent extraction, adsorption, and photolysis, are based on adopting various nanomaterials (NMs) with a high surface area, including carbon NMs, polymers, metals-based, and metal oxides. However, significant bottlenecks are toxicity, cost, secondary contamination, size and space constraints, energy efficiency, prolonged time consumption, output efficiency, and scalability. On the contrary, green NMs fabricated using microorganisms emerge as cost-effective, eco-friendly, sustainable, safe, and efficient substitutes for these traditional strategies. This review summarizes the state-of-the-art microbial-assisted green NMs and strategies including microbial cells, magnetotactic bacteria (MTB), bio-augmentation and integrated bioreactors for removing an extensive range of water contaminants addressing the challenges associated with traditional strategies. Furthermore, a comparative analysis of the efficacies of microbe-assisted green NM-based water remediation strategy with the traditional practices in light of crucial factors like reusability, regeneration, removal efficiency, and adsorption capacity has been presented. The associated challenges, their alternate solutions, and the cutting-edge prospects of microbial-assisted green nanobiotechnology with the integration of advanced tools including internet-of-nano-things, cloud computing, and artificial intelligence have been discussed. This review opens a new window to assist future research dedicated to sustainable and green nanobiotechnology-based strategies for environmental remediation applications.