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Owing to the great interest in biodiesel fuels around the world, the Department of Science and Technology (DST), Government of India has sponsored this research work to study the performance and emission characteristics of Jatropha Methyl Ester (JME) and Diesel-JME-Ethanol hybrid fuel blends in a direct injection diesel engine. Detailed experiments are carried out in a single cylinder CI diesel engine to study the performance, emissions and combustion characteristics of JME and hybrid fuel blends. The results reveal that 100% JME can be used as a complete replacement fuel for fossil diesel. A slight increase in BTE, considerable reduction in NOx emissions and moderate smoke reduction at all loads were observed for the hybrid fuel blends. With suitable surfactants ethanol can be blended up to 15% in diesel - biodiesel fuel blends to fuel existing CI engines without any hardware modifications to reduce engine out emissions.