In the present study, a marine red yeast Rhodotorula glutinis ISO A1 cultivated under combinations of artificial seawater (ASW) and sewage wastewater (SWW) has been subjected to detailed mechanistic investigations via physiological and biochemical analysis to dissect the pathway of halotolerance behavior and carbon flux channelization towards enhanced lipid synthesis. Amid all tested groups (25–100% ASW), cells grown in 25% ASW yielded ∼ 1.4-fold higher lipid yield than glucose synthetic medium (GSM) and revealed metabolic rewiring of cells to channelize carbon pools for producing neutral lipids of vehicular quality. Detailed carbohydrate profiling showed enhanced glycerol, trehalose, mannose, and xylitol/arabitol under saline stress, suggesting the interplay of these metabolites to impart tolerance against osmotic imbalance. Further, the strengthened enzymatic activity (glutathione reductase, superoxide dismutase, ascorbate peroxidase) and non-enzymatic metabolites (betaine, proline) highlighted the active yeast defence network to counter altered redox state arise due to high salinity. The stress-induced responses also constituted substantial variations in membrane fluidity and production of biodiesel-quality lipids. Further findings like low thermal degradation temperature (at ∼ 265°C) and high chitin (can be converted into chitosan) entity in yeast de-oiled biomass primarily derived from yeast cells grown under contaminated environment; sea and sewage wastewater, signified its potential utilization for chitosan recovery, a commercially important product. Conclusively, this study elucidated a competent model of yeast-based biorefinery approach integrating seawater-wastewater utilization and simultaneous production of biodiesel and value-added products vital for a sustainable and circular bioeconomy.