Algae are regarded among the most favorable feedstocks for producing sustainable biodiesel and utilizing it in diesel engines. Additionally, ethanol addition further enhanced the performance and reduce greenhouse emission. Algae biodiesel was produced, and an experimental study was performed to understand the diesel engine performance and emissions characteristics using different fuel blends by varying the ratio of diesel, biodiesel, and ethanol, such as D100, B10, B20, B5E5, and B10E10 (where number shows the percentage of the respective fuel). It was found that brake thermal efficiency was reduced by 0.49% and 1.29% for B10 and B20 blends, while the addition of ethanol enhanced the BTE by 0.37% and 1.60% respectively. However, SFC increases by 1.45%, 2.14%, 3.18%, and 3.78% respectively for B10, B20, B5E5, and B10E10 with respect to diesel fuel. Combustion characteristics were increased with increasing concentration of biodiesel and ethanol addition. Particulate matter, smoke emissions, and CO2 were slightly reduced by 3%, 4%, and 0.18%, respectively, while NOx emissions were increased by 26% for B10 blended fuel as compared to diesel fuel. Further addition of 5% (volume) ethanol in B5 fuel reduced particulate matter, smoke emissions, and CO2 emissions by 26.4%, 22%, and 23% respectively. Among the tested blends (B10, B20, B5E5, and B10E10), ethanol blended fuel was found to be more promising due to its higher combustion and performance and to have lower emissions to diesel fuel.