A photobioreactor with an optical system that spatially dilutes solar photosynthetic active radiation has been designed, built, and tested at the Utah State University Biofuels Center. This photobioreactor could be used to produce microalgal biomass for a number of purposes, such as feedstock for an energy conversion process, or high-value products, such as pharmaceuticals and nutraceuticals. In addition, the reactor could be used to perform services such as removing nitrates, phosphates, and other contaminants from waste water, as well as scrubbing toxic gases and carbon dioxide from flue gas. Preliminary tests were performed that compared growth and productivity kinetics of this reactor with that of a control reactor without spatial light-dilution. Tests indicated higher specific growth rates and higher areal and volumetric yields compared with the control reactor. The maximum specific growth rate, volumetric yield, and areal yield were , , and , respectively. Over 10 days of sequential-batch operation, the prototype photobioreactor converted direct-normal solar energy to energy stored in biomass at an average efficiency of 1%. The areal productivity, as mass per aperture per time, was three times higher than that of the control reactor, indicating the photobioreactor design investigated holds promise.