As global energy demands continue to grow and environmental challenges intensify, Biodiesel stands out as an environmentally sound and technically feasible alternative to curb fossil fuel use and emissions. This study provides an in-depth analysis of the performance and emissions profile of a compression ignition (CI) engine running on a renewable diesel fuel blend made from ethanol and cottonseed (Cs) combinations enhanced with aluminium oxide (Al2O3) nanoparticles. The experimental fuel blends, consisting of 10%, 20%, and 30% cottonseed biodiesel with 5% ethanol and remaining with conventional diesel, were analyzed under varying engine load conditions. The inclusion of ethanol improved fuel atomization due to its lower viscosity and higher volatility, while Al2O3 nanoparticles acted as advanced combustion catalysts, promoting enhanced oxidation rates and thermal efficiency. Among the blends, B10 (10% cottonseed biodiesel) exhibited superior performance metrics, achieving a brake thermal efficiency (BTE) of 32.8%, marginally below diesel’s 33.44%, and a 1.6% rise in brake-specific fuel consumption (BSFC). The analysis of emissions highlighted a considerable decline in nitrogen oxide (NOₓ) emissions. 7.14%, 10.71%, 14.29% recorded for B10, B20, B30 blends respectively. Carbon monoxide (CO), unburned hydrocarbons (HC), and smoke opacity showed a small uptick. The overall emissions profile confirmed substantial environmental benefits, establishing B10 as the most balanced blend for optimized engine performance and minimized pollutant emissions. This research paves the way for future developments in renewable biodiesel blends, offering advancements in fuel economy, cleaner combustion, and overall emission reductions, while addressing the increasing demand for sustainable energy sources.