Currently, India imports 84% of its total oil needs and aims to bring that down to 67% by 2022. To aim for this, the hunt for sustainable production of non-toxic, renewable, and low-cost alternative fuel sources is the need of the hour. Azolla microphylla plant which grows on the water surfaces can be a potential feedstock for the production of biodiesel. The oil was extracted from the azolla plant by the solvent extraction method. The biodiesel was produced from the azolla oil through the transesterification process. The azolla biodiesel was blended with the diesel in the ratio of 25:75, 50:50, and 75:25 by volume and tested in a diesel engine at the part and maximum load conditions. The engine characteristics of the azolla biodiesel blends, neat azolla biodiesel, and sole diesel were compared. The result showed that brake thermal efficiency (BTE) was highest for the B25 (25% azolla biodiesel, 75% diesel) blend with a value of 25.9% which was less than sole diesel, whose BTE value was 26.8% at maximum load. The high viscous nature of biodiesel blends results in inferior evaporation and improper air–fuel mixing process. Due to this, the B25 blend gave the least CO, HC, and smoke emissions among the test blends, but slightly higher than that of neat diesel. The NO emission for diesel was 852 ppm, 882 ppm, and it is 806 ppm, 824 ppm for B25 at the part and maximum load respectively. The peak cylinder pressure for diesel and B25 blend was 50.8 bar and 49.4 bar respectively at maximum load.