In the transport sector, a Major source of energy is from diesel engine. Karanja oils have a great potential to be alternative fuel for diesel engines. Use of non-edible oil is helpful for food security. Blend of biodiesel, ethanol and diesel fuel improve some properties compared with biodiesel diesel blends and ethanol biodiesel blends. Addition of ethanol (CN-6 to 8) lowers cetane number of blend with the addition of cetane improver it can be overcome. This paper consist of investigation of properties of karanja biodiesel, karanja biodiesel with 15% ethanol and cetane improver(3ml) and karanja biodiesel with 20% ethanol and cetane improver (3ml). Also the performance of these blends investigated with the help of variable compression ratio engine taking 15,16,17,18 as a compression ratio. Addition of cetane improver (2-EHN), lower ignition delay and improve combustion quality. The effect of these blends on Brake Specific Fuel Consumption (BSFC), Brake Thermal Efficiency (BTE), Indicated Thermal Efficiency (ITE), Volumetric Efficiency, Mechanical Efficiency, Exhaust Gas Temperature (EGT) is Studied. From experimental result it is found that additional lubricity gives better output with minimum frictional loss as compared with conventional diesel. Cetane improver which gives better combustion characteristics reduces ignition delay and maximum amount of fuel burnt nearer to TDC and no fuel remain for the after combustion stage or exhaust pipe combustion. Lower heating value give less heat generation which causes lower exhaust gas temperature.