Biodiesel derived from biomass is a renewable source of fuel, and global application of biodiesel in the transport sector has rapidly expanded over the last decade. However, effort has been made to overcome its main shortcoming, i.e., efficiency and exhaust emission characteristics (NOx emissions) in unmodified diesel engines. Biodiesel combustion generally results in lower unburned hydrocarbons (HC), carbon monoxide (CO), and particulate matter (PM) in exhaust emissions compared to fossil diesel. In this study, various biodiesel blends (Chlorella vulgaris, Jatropha curcus, and Calophyllum inophyllum) were investigated for fuel characteristics, and engine performance with exhaust emission compared to diesel. Chlorella vulgaris, Jatropha curcus, and Calophyllum inophyllum biodiesel were synthesized by the acid–base transesterification approach in a microwave reactor and blended with conventional diesel fuel by volume. The fuel blends were denoted as MB10 (90% diesel + 10% microalgae biodiesel), MB20 (80% diesel + 20% microalgae biodiesel), JB10 (90% diesel + 10% jatropha biodiesel), JB20 (80% diesel + 20% jatropha biodiesel), PB10 (90% diesel + 10% polanga biodiesel) and PB20 (80% diesel + 20% polanga biodiesel). Experiments were performed using these fuel blends with a single-cylinder four-stroke diesel engine at different loads. It was shown in the results that, at rated load, thermal efficiency of the engine decreased from 34.6% with diesel to 34.1%, 33.7%, 34.1%, 34.0%, 33.9%, and 33.5% with MB10, MB20, JB10, JB20, PB10, and PB20 fuels, respectively. Unburned hydrocarbon, carbon monoxide and smoke emissions improved with third-generation fuels (MB10, MB20) in comparison to base diesel fuel and second-generation fuels (JB10, JB20, PB10 and PB20). Oxides of nitrogen emissions were slightly increased with both the third- and second-generation fuels as compared to the base diesel. The combustion behavior of microalgae biodiesel was also very close to diesel fuels. In the context of comparable engine performance, emissions, and combustion characteristics, along with biofuel production yield (per year per acre), microalgae biodiesel could have a great potential as a next-generation sustainable fuel in compression engine (CI) engines compared to jatropha and polanga biodiesel fuels.