Based on the physical and chemical properties of biodiesel, ethanol and diesel fuels, biodiesel-ethanol-diesel (abbreviated as BED) fuel were produced by compounding. The compatibility and stability of the BED and its compact on diesel engine performance and emissions were studied experimentally with six different BED fuels. The results show the following findings. Firstly, the biodiesel, ethanol, and diesel constituents can keep soluble at certain proportions when the volume ratio of the biodiesel is 25%~55% of the BED fuels. Secondly, the engine power decreases slightly, and the reduction amplitude becomes larger when the proportions of ethanol and biodiesel increase at medium speeds and high loads. Moreover, the power of the engine using the B30E10D60 fuel decreases by 10.2% when the engine is running at maximum torque condition. Thirdly, there is no significant variation in equivalent fuel consumption rate at low loads, and the fuel consumption rate becomes lower with the increase of oxygen content at high loads. Therefore, the equivalent fuel consumption rates of BED fuels are lower than that of pure diesel (petrochemical diesel). Finally, the CO emission of the BED is almost the same as that of pure diesel at low loads, but becomes lower at high loads. The NOx emission of the BED is slightly lower than that of pure diesel at low loads, but becomes higher at high loads. The NOx emission increases with the increase of biodiesel proportion and decreases with the increase of ethanol proportion. The THC emission of the BED is almost the same as that of pure diesel at low loads and becomes lower at high loads. The THC emission decreases when the biodiesel proportion increases, and increases when the ethanol proportion increases.