Global warming with stringent emission legislation along with the depletion of fossil fuel has given us an opportunity to find biodiesel as alternative to diesel fuel. Biodiesel has been widely accepted as comparable fuel to diesel in diesel engine. This is due to its renewable property, better lubricity, along with lesser gaseous emission as compared to diesel fuel. However, there is a major disadvantage in the use of biodiesel as it increases NOx emission. Fuel additive becomes one of the essential tools to overcome the drawback of biodiesel required to meet the international standard of performance and emission. In this study, the performance, combustion, and gaseous emission of CO, CO2, HC, NOx and PM including particle size number distribution characteristics, were compared for diesel, Karanja oil biodiesel, and Karanja oil biodiesel with Cerium Oxide Nano particles fuel additive, in a 12 cylinder, 585 kW, CIDI military diesel engine. The experimental result showed that engine performance with Karanja oil biodiesel with fuel additive increased by 5%, along with lower gaseous emission including 14% - 26% lower NOx emission, lower particulate size number distribution, lower particle size surface area distribution, and lower total particulate number concentration, as compared to diesel fuel.