The present work aims to produce biofuel from fish oil industrial residue and to test the biofuel in diesel engine. A 4.5 kW at 1500 rpm single cylinder air cooled direct injection diesel engine was used for the present experimental work. The experimental results show that the brake thermal efficiency marginally increases with biofuel from 29.98% (neat diesel) to the maximum of 32.4% with biofuel at 80% of maximum load. Also experiments were conducted with different blends of biofuel and diesel (B20 and B40). Though the NO_x emissions are high with neat biofuel and blends, the other emissions like CO, HC and particulate matter (PM) are decreased. The PM emissions decrease when the percentage biofuel increases in the blend. It reduces from 8271 ng/s with neat diesel to 8137 ng/s with B40. It further reduces to the minimum of 7842 ng/s with neat biofuel. The cylinder peak pressure increases as the biofuel quantity increases in the blend. The rate of premixed combustion increases with neat biofuel and its blends than neat diesel. Addition of biofuel with diesel decreases the combustion duration and ignition delay due to higher cetane number of biofuel.