Primary energy sources can be divided into non-renewable and renewable. The over-exploration of non-renewable sources for energy availability imposes considerable impacts on the environment. Reducing the use of fossil fuels would significantly reduce the carbon dioxide emissions and other pollutants produced. The future drift for sustainable production of renewable energy is cautiously thoughtful for it has been increasingly understood that first generation biofuels, majorly produced from food crops that are limited in their ability to achieve targets for biofuel production, climate change mitigation and economic growth. These concerns have increased the interest in developing second generation biofuels produced from non-edible feedstock such as microalgae, which potentially offers greatest opportunities in the longer term. Microalgae are considered a very promising feedstock for biodiesel production due to their very high yield and their no competition with food crops. This research paper examines the potential suitability of biodiesel made from microalgae of Indian origin. In the present investigation, three different blends of algae oil methyl ester (AOME) of 10%, 15% and 20% by volume with fossil diesel were tested on single cylinder water cooled medium capacity diesel engine. During the investigation, significant reduction in brake specific fuel consumption (BSFC), unburned hydrocarbon (UBHC), carbon monoxide (CO), and smoke was observed. However, the emissions of oxides of nitrogen (NOx) increased significantly. Hence, it can be concluded that diesel fuel can be successfully blended with algae biodiesel to decrease dependency on fossils through promising performance characteristics without any prior engine modification.