Biomass obtained from palm oil farms is transformed into edible oil, generating around 90% of total biomass as waste material is finding its effective utilization as a viable feedstock for biodiesel synthesis. Biodiesel-produced form palm oil sludge (POS) waste is a two-stage process, namely, esterification and trans-esterification process using HCl as acid catalyst and NaOH as base catalyst, respectively. Biodiesel properties were not only analyzed as per IS 1448 standards but also compared with ASTM D6751 Petro-diesel standards and ASTM D6751 biodiesel standards. The performance of engine and emission gas characteristics of blended fuel obtained by blending POS waste biofuel with pure diesel as B5, B10, B15, B20, and B25 were analyzed under varying engine loading conditions (5–18 kgs). The important engine performance parameters like brake thermal efficiency (BTE), mechanical efficiency (ME), exhaust gas temperature (EGT), and brake-specific fuel consumption (BSFC) were analyzed and compared with standard diesel. The engine exhaust emission gases like CO, CO2, HC, and NOX were also studied for the prepared blends and compared with pure diesel fuel. The present study highlights the utilization of POS-based biofuels for enhanced environmental safety. The B20 blend gave better engine performance characteristics and comparable to normal diesel.