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Biodiesel in has gained great momentum in last few years and has been a subject of vast research all around the globe. Bulk of the research work carried out so far has been confined to production of methyl esters of vegetable oil that is known as biodiesel in the transesterification process. In the present study, jatropha oil ethyl ester (JOEE) was prepared using transesterification process with ethanol and KOH as a catalyst. The evaluation of important physico-chemical properties was carried and the properties were found within acceptable limits of ASTM/EN standards. A small capacity diesel engine was fuelled with different blends of JOEE and diesel and various performances, emission and combustion characteristics were evaluated. The results suggested that brake thermal efficiency was increased and emissions of carbon monoxide, hydrocarbons and smoke opacity were found lower for JOEE blend confirming better combustion due to the oxygenated fuel and higher cetane rating.