Ethanol, being a bio-based alternate fuel, is one of the most promising fuels for blending with diesel for emissions reduction, primarily due to its oxygenated nature, which results in lower carbon content than diesel. Under this research work, various ethanol-diesel (ED) blends have been developed for investigation. Additives were developed to address the problem of corrosion, cetane number reduction, and blend stability. A detailed physico-chemical characterization was performed, and all the blends were subjected to the stability test at various temperatures. Subsequently, detailed experiments were conducted to understand ethanol- blended diesel fuels combustion and engine-out emission characteristics. The performance of the tested engine with ethanol blending remained at par with the baseline diesel; however, a reduction in the PM and gaseous emissions established ethanol blend as a favourable fuel solution for the tested CI engine. Experimental results indicate that blending ethanol in diesel leads to 7% reduction of the cycle NOx emissions (for 20% blend) as compared to the baseline diesel; however, HC and CO were observed to have an increasing trend. A significant reduction of PM (~32%) was observed with 20% ethanol blending. The thermal efficiency improved by 6% maximum with 20% ethanol blend at full load. A meticulous analysis of the combustion data indicated no significant change in the engine in-cylinder pressure values and the start of injection from baseline diesel to ethanol blends at full load condition. However, at part load operation (at and below 50% load), peak firing pressure was reduced up to 6%, and the start of injection and combustion got retarded by ~2 deg crank angle. 5% ethanol blend came out as optimum for quick implementation in the existing engine perspective. Nonetheless the additional HC/CO emissions might have to be dealt with by a catalytic converter.