In alignment with the International Maritime Organization’s 2023 GHG Strategy and the Paris Agreement, this study investigates the viability of ternary blends of marine diesel, biodiesel, and ethanol as low-emission marine fuels. While previous studies have established the physicochemical behavior and storage stability of such blends, particularly the co-solvency role of biodiesel to prevent phase separation, limited data exists on their combustion performance under engine-relevant conditions. This work addresses this gap through a series of controlled experiments conducted in a Rapid Compression Machine (RCM), which enables the approximate a single-cycle combustion in a compression ignition engine. The tested blends included varying proportions of ethanol (up to 20% in volume) in a blend of fossil fuel with 25% of biodiesel (25%), and their combustion were evaluated across different injection timings. Key performance metrics such as ignition delay, maximum temperature and pressure, thermodynamic efficiency, and combustion efficiency were calculated and analyzed. Results demonstrated that increasing ethanol content led to longer ignition delays due to ethanol’s low cetane number and high latent heat of vaporization, which in turn affected heat release dynamics and efficiency. Thermodynamic efficiency peaked at early injection timings, reaching up to 49.41% for B25E20 blends with intermediate timing (3 mm), while combustion efficiency also improved with higher ethanol content, especially at early and late injection points. Notably, B25E20 achieved the highest combustion efficiency among all blends tested and for all injection timing. These findings highlight the potential of biodiesel–ethanol–diesel blends for reducing maritime emissions while optimizing energy utilization, provided that injection parameters are carefully tuned. The study also reinforces the need for further refinement of predictive models to capture the nonlinear behavior of these fuels, supporting the broader transition to sustainable marine propulsion technologies.