The objective of this work is to optimize direct injection, single cylinder diesel engine with respect to brake power, fuel economy and exhaust emissions through experimental investigation and response surface methodology (RSM). As far as the application in rural agricultural sector of a developing nation in concerned, such engines should preferable utilize alternative fuels of bio-origin. In this test, the mustard biodiesel and diesel blending with diethyl ether (DEE) in the ratio of 0:100:0, 20:80:0, 30:70:0, 40:60:0, 15:80:5, 25:70:5 and 35:60:5 by volume were tested in CI Engine. The results shows that compared with neat diesel, there is slightly lower brake specific fuel consumption (BSFC) for diesel-biodiesel-DEE blend. Strong reduction in emission is observed with diesel-biodiesel- DEE at various engine loads. Methyl ester of mustard biodiesel of 25% and DEE 5% blend with diesel gave best performance in terms of low smoke intensity, emissions of HC,CO,CO2,and NOx.