Tagatose is a rare sugar with increasing commercial interest as sweetener. Biotechnological production of d-tagatose by enzymatic isomerization of d-galactose provides an alternative to chemical processes. In the last years, l-arabinose isomerases (L-AIs) from different origins have been studied to increase the effectiveness of tagatose production. In this work, the L-AI from Bacillus subtilis, previously reported to have unique substrate specificity for l-arabinose, was expressed in Escherichia coli and studied for isomerization of d-galactose to d-tagatose. The recombinant enzyme demonstrated, for the first time, tagatose bioconversion capacity, reaching ~59% conversion. Furthermore, a sustainable tagatose production strategy was developed by using Gelidium sesquipedale red seaweed and its undervalued processing residues as source of galactose. L-AI successfully converted the galactose-rich hydrolysate, obtained from direct acid hydrolysis of seaweed, to tagatose (50.9% conversion). Additionally, the process combining autohydrolysis of G. sesquipedale and acid hydrolysis of the remaining residue allowed a full integral valorisation of polysaccharides: 13.33 g of agar, an important hydrocolloid, coupled with the production of 5.97 g of tagatose. These results confirmed that seaweed biomass and waste-derived are promising substrates for tagatose production by L-AI, contributing to the advancement of circular economy and to the actual needs of food industry. Display omitted •l-arabinose isomerase (L-AI) from B. subtilis was studied for tagatose production.•Recombinant L-AI can isomerize d-galactose to d-tagatose, with ~59% conversion.•Gelidium sesquipedale seaweed as a suitable source of galactose for tagatose production.•Production of tagatose and agar from red algae in a biorefinery approach.