Biofuels are being investigated as potential substitutes for current high pollutant fuels obtained from the conventional sources. The primary problem associated with using straight vegetable oil as fuel in a compression ignition engine is caused by viscosity. The process of transesterifiction of vegetable oil with methyl alcohol provides a significant reduction in viscosity, thereby enhancing the physical properties of vegetable oil. The Kirloskar HA394 compression ignition, multi cylinder diesel engine does not require any modification to replace diesel by karanja methyl ester. Biodiesel can be used in its pure form or can be blended with diesel to form different blends. The purpose of this research was to evaluate the potential of karanja oil methyl ester and its blend with diesel from 20% to 80% by volume. Engine performance and exhaust emissions were investigated and compared with the ordinary diesel fuel in a diesel engine. The experimental results show that the engine power of the mixture is closed to the values obtained from diesel fuel and the amounts of exhaust emissions are lower than those of diesel fuel. Hence, it is seen that the blend of karanja ester and diesel fuel can be used as an alternative successfully in a diesel engine without any modification and in terms of emission parameters; it is an environmental friendly fuel.