Experiments were conducted to evaluate the performance of a low heat rejection (LHR) diesel engine. Performance parameters and emission levels were determined at various magnitudes of brake mean effective pressure. Combustion characteristics of the engine were measured with TDC (top dead centre) encoder, pressure transducer, console and special pressure-crank angle software package at peak load operation of the engine. Conventional engine (CE) and LHR engine showed improved performance at recommended injection timing of 27obTDC and recommended injection pressure of 190 bar, when compared with CE with pure diesel operation. Peak brake thermal efficiency increased by 18%, smoke levels decreased by 48% and NOx levels decreased by 38% with LHR engine relatively at its optimum injection timing and maximum induction of ethanol when compared with pure diesel operation of CE at manufacturer’s recommended injection timing.