In the recent research, as a result of depletion of world petroleum reserves, considerable attention has been focused on the use of different alternative fuels in diesel engines. The present work aims to ensure the possibility of adding ethanol as an additive with animal fat biodiesel that is tested as an alternative fuel for diesel in a CI engine. In this study, biodiesel is obtained from waste pork lard by base-catalyzed transesterification with methanol when potassium hydroxide as catalyst. 2.5%, 5% and 7.5% by volume of ethanol is blended with neat biodiesel in order to improve performance and combustion characteristics of a diesel engine. The experimental work is carried out in a 3.7 kW, single cylinder, naturally aspirated, water cooled, direct injection diesel engine for different loads and at a constant speed of 1500 rpm. The performance, emission and combustion characteristics of biodiesel-ethanol blends are investigated by comparing them with neat biodiesel and standard diesel. The experimental test results showed that the combustion and performance characteristics improved with the increase in percentage of ethanol addition with biodiesel. When compared to neat biodiesel and standard diesel, an increase in brake thermal efficiency of 5.8% and 4.1% is obtained for BEB7.5 blend at full load of the engine. With the increase in percentage of ethanol fraction in the blends, peak cylinder pressure and the corresponding heat release rate are increased. Biodiesel-ethanol blends exhibit longer ignition delay and shorter combustion duration when compared to neat biodiesel. Optimum reduction in carbon monoxide, unburned hydrocarbon and smoke emission are attained while using BEB5 blend at full load of the engine. However, there is an adverse effect in case of nitrogen oxide emission.