Since long time researchers around the world concentrate on the alternative fuel for Diesel engine. Due to characteristics of renewable bio-based resource, Ethanol is an attractive alternative fuel. It is a thereby providing the potential to reduce particulate emissions in compression–ignition engines. In this review the specifications and properties of ethanol blended with diesel fuel are discussed. Major factors which are critical and affect to the potential commercial use of these blends are considered in this review. Also the effect of the blended fuel on emissions, engine’s durability and its performance is also considered. There are some adverse effects of ethanol while adding to diesel fuel like decreasing high heating value, cetane number, kinematic viscosity and aromatics fractions of ethanol blended diesel fuels and distillation temperatures goes changing. Use of ethanol blended diesel also required fuel tank modifications for maintaining vehicle safety. Further work is required in specifying acceptable fuel characteristics, confirming the long-term effects on engine durability, and ensuring safety in handling and storing ethanol–diesel blends.