The global bivalve shellfish industry makes up 25% of aquaculture, is worth USD $17.2 billion year-1, and relies upon a supply of juvenile bivalves produced by adult broodstock in hatcheries. Today large quantities of live algae are grown to feed broodstock at $220 kg-1, driving highly unsustainable energy and resource use. New advances in algal and microencapsulation technology provide solutions. We developed microencapsulated Schizochytrium algae diets, which can be produced sustainably at < $2 kg-1 from organic side-streams, and are shelf-stable to minimise waste. Physiological, histological, and cutting-edge metabolomic analyses demonstrate that in commercial settings sustainable microencapsulated diets facilitate improved sexual development and 12 × greater omega-3 levels in oysters relative to conventional live algal diets. Every tonne bivalve protein produced instead of fish spares 9 ha, 67 tonnes CO2, and 40,000 L freshwater. Further research into microencapsulated diets could support bivalve industry expansion, and contribute towards a step-change in sustainable global food production through improved aquaculture practices.