Depletion of fossil fuels and amendment of strict emission norms demand for the development of new technologies in ensuring effective utilization of existing renewable energy resources. Nanotechnology is one such new tool which finds wide application in the automobile industries. Light weight in nature, high degree of durability, toughness and wear resistance makes the usage nanomaterial’s wide spread. In view of above points, an attempt was made in this study to experimentally investigate the effect of inclusion of Nano fluids on the behavior of a compression ignition engine fuelled with a diesel biofuel blends. In this work Cashew Nut Shell Oil (CNSO) is chosen as the biofuel as its calorific value found to be very close to diesel. Initially CNSO and Neat Diesel (ND) are blended at different proportion and CNSO40 is claimed as the best blend as its hold a stability period of more than a week. In the second phase of the work engine was tested for its performance, emission and combustion behavior with ND and CNSO40 at 20%, 40%, 60%, 80% and 100% of maximum engine power output. Aluminum oxide Nano fluid is prepared with the help of ultra sonification and mixed well with CNSO40 using mechanical agitator. Same engine testing procedure was followed for determining the engine behavior of CNSO40 Aluminum Oxide Emulsion (CDA). Results inference that, maximum brake thermal efficiency of CNSO40 was found to be 27% where it was around 31% with neat diesel. However the addition of Nano fluids improved the BTE of CNSO40 by a margin. Noticeable things in the results are significant and simultaneous reduction on oxides of nitrogen and smoke emission with CDA. However HC emission of CNSO40 was increased to a maximum value of 130ppm from 115 ppm with addition of Nano fluids. Combustion characteristics were also found to be improved with the inclusion of Nano fluids as compared to CNSO40. Thus this work adds value to the point on usage of nanofluids as fuel additives for effective utilization of renewable fuel in compression ignition engine.