The role of bio-derived, eco-friendly products such as butanol and ethanol as an additive in petro-diesel has been studied. Dispersion properties and physical stability of the blends have-been ascertained with the aid of transmittance and backscattering profiles. Combustion phenomenon of blended fuel when monitored shows rapid ignition as compared to diesel, thereby suggesting reduction in ignition delay. Engine performance experiments are carried out in single cylinder compression ignition (CI) engine and the results show marginal reduction in brake thermal efficiency and exhaust gas temperatures as compared to diesel. A reduction of 3.5% in fuel consumption is observed with blend as compared to that with diesel for generating equivalent brake power. Physical properties such as density, viscosity, net calorific value, cetane index and copper strip corrosion are determined and found in accordance with ASTM standards. Reduction in size of soot particles is observed at the end of blend combustion.