In this paper, the thermodynamic analysis of the existing diesel engine was conducted to evaluate the effects of using diethyl ether (DEE) as additive to mustard and diesel. The mustard biodiesel and DEE blending with diesel in the ratio of 0:0:100, 20:0:80, 30:0:70, 40:0:60, 15:5:80, 25:5:70 and 35:5:60 by volume were tested in diesel engine. The aim of exergy analysis is to estimate the exergy destruction in each module as well as exergetic efficiencies. In the thermodynamic performance, 3.5 kW diesel engines coupled with eddy current dynamometer. From the thermodynamic analysis, the maximum thermal efficiency of the engine is 29.6% for biodiesel blend at higher load.