Alga is a diverse and widely distributed microorganism across the globe. An endeavor has been made to study the algae of Toebrongchhu stream, Punakha district, Bhutan including their diversity and distribution pattern. It also assessed the relationship between algae and selected physicochemical parameters of stream water. Stratified systematic sampling was used for the study due to huge differences in altitude and climatic conditions in the study area. The stream was divided into three zones, downstream, mid-stream, and headwater stream along the altitudinal gradient. The algae were collected by scooping, scraping, and scrubbing different moist and submerged substrates from 36 plots along the stream and then preserved in 4% formaldehyde solution. Results present a total of 40 algae taxa including 25 algae identified up to species level, among which 19 are being reported for the first time from Bhutan. Species diversity was higher in downstream altitudinal zone ranging from 1200-1600 m a.s.l. Similarly, the microhabitat pool had higher species diversity. Spearman correlation showed a significant positive correlation of diversity with total dissolved solids, conductivity, salinity, temperature, dissolved oxygen, and pH, and a negative correlation with altitude. Canonical correspondence analysis between algal species and parameters revealed that altitude is the main factor in the distribution of freshwater algae.