Genetically engineered (GE) algae offer the promise of producing food, fuel, and other valuable products with reduced requirements for land and fresh water. While the gains in productivity measured in GE terrestrial crops are predicted to be mirrored in GE algae, the stability of phenotypes and ecological risks posed by GE algae in large-scale outdoor cultivation remain unknown. Here, we describe the first US Environmental Protection Agency (EPA)-sanctioned experiment aimed at understanding how GE algae perform in outdoor cultivation. Acutodesmus dimorphus was genetically engineered by the addition of two genes, one for enhanced fatty acid biosynthesis, and one for recombinant green fluorescence protein (GFP) expression; both the genes and their associated phenotypes were maintained during fifty days of outdoor cultivation. We also observed that while the GE algae dispersed from the cultivation ponds, colonization of the trap ponds by the GE strain declined rapidly with increasing distance from the source cultivation ponds. In contrast, many species of indigenous algae were found in every trap pond within a few days of starting the experiment. When inoculated in water from five local lakes, the GE algae's effect on biodiversity, species composition, and biomass of native algae was indiscernible from those of the wild-type (wt) progenitor algae, and neither the GE nor wt algae were able to outcompete native strains. We conclude that GE algae can be successfully cultivated outdoors while maintaining GE traits, and that for the specific GE algal strain tested here they did not outcompete or adversely impact native algae populations when grown in water taken from local lakes. This study provides an initial evaluation of GE algae in outdoor cultivation and a framework to evaluate GE algae risks associated with outdoor GE algae production.