This study investigates the performance and combustion characteristics of a Variable Compression Ratio (VCR) diesel engine fueled with biodiesel blends derived from non-edible tire oil and edible cottonseed oil. The biodiesel is produced through a two-step “acid–base” transesterification process. Engine performance is evaluated using 5% biodiesel blends (from both oils) mixed with conventional diesel at varying compression ratios and engine loads. Results indicate that increasing the biodiesel proportion in the blend leads to an increase in both maximum cylinder pressure and heat release rate. Biodiesel-diesel blends significantly reduce carbon monoxide (CO) and smoke emissions compared to pure diesel. However, a notable increase in nitrogen oxides (NOx) emissions is observed at full load, a common occurrence attributed to higher combustion temperatures associated with biodiesel utilization. The performance of the engine operating on these biodiesel blends is similar to that of diesel, with only marginal differences in engine power and efficiency. The study concludes that biodiesel from tyre oil and cottonseed oil offers a viable alternative to conventional diesel, providing environmental benefits, particularly in terms of lower CO and smoke emissions, though NOx emissions need to be addressed, especially under full-load conditions. Further research into engine optimization, exhaust after-treatment systems, and long-term engine durability is recommended to fully realize the potential of these biodiesel blends.