Diesel Ethanol (Diesohol) blends are one of the suitable alternative fuel to replace diesel for fueling the compression ignition engines. This experimental study is to utilize optimal fuel blend that contains a higher volume of ethanol in diesel with treated waste engine oil as co-solvent for preventing the phase separation. This study includes three stages: Treating the waste engine oil, preparation of diesel ethanol blends with treated waste engine oil as co-solvent, testing the blends for solubility, properties and performance in a compression ignition engines. Treatment of waste engine oil was conducted in five steps including the acid-clay treatment, in which acetic acid and fuller earth were used as treating materials. Solubility test was conducted for various proportions of diesel-ethanol blends (from 0% to 50% of ethanol by volume) and treated waste engine oil (from 5% to 25%). The stable blends were tested for essential properties as per the ASTM standards. Optimal blend (45%ethanol 15% treated waste engine oil & 40% diesel) was tested for performance, combustion and emission characteristics in a diesel engine at various load conditions. Results of solubility test depicted that fuel blends (containing above 25% of treated waste engine oil) were found stable without suffering phase separation for 20days, however, the properties of these blends were not found suitable to fuel diesel engines. The addition of treated waste engine oil increased the kinematic viscosity, cetane number, flash point and density of diesohol blends. Hence, an optimal blend containing 45% ethanol, 15% treated waste engine oil and 40% diesel was chosen for further study. Engine test results showed that this blend produced higher brake thermal efficiency, higher peak in-cylinder pressure, higher peak heat release rate, similar exhaust gas temperature, lower emissions of oxides of nitrogen, smoke. However, the emissions of carbon monoxide and hydrocarbons were found marginally higher in comparison to that of diesel. This experimental study reduces the dependency of diesel to fuel diesel engine and also prevents the land pollution caused by the waste engine oil. Also, the waste engine oil enormously collected has been utilized as fuel is an attractive attempt.