Microalgae, originating from a tertiary treatment of municipal wastewater, is considered a sustainable feedstock for producing biochar and hydrochar, offering great potential for agricultural use due to nutrient content and carbon storage ability. However, there are risks related to contamination and these need to be carefully assessed to ensure safe use of material from wastewater microalgae. Therefore, this study compared the properties and phototoxicity of biochar and hydrochar produced via pyrolysis and hydrothermal carbonisation (HTC) of microalgae under different temperatures and residence times. While biochar promoted germination and seedling growth by up to 11.0% and 70.0%, respectively, raw hydrochar showed strong phytotoxicity, due to the high content of volatile matter. Two post-treatments, dichloromethane (DCM) washing and further pyrolysis, proved to be effective methods for mitigating phytotoxicity of hydrochar. Additionally, biochar had 35.8–38.6% fixed carbon, resulting in higher carbon sequestration potential compared to hydrochar.