Production of biodiesel through transesterification of Karanja (Pongamia pinnala) oil was Studied. me Karanja oil was treated with a lower alcohol (methanol) in the presence of a base catalyst (KOH) to yield methyl esters of fatty acids (biodiesel) and glycerin. The influences of reaction temperature, molar ratio of alcohol to oil, amount of catalyst and reaction time on the product yield were studied. The optimal combination of operating parameters for maximum yield was found out using Taguchi's method. me performance and emission tests were carried Out in a four stroke single cylinder, Kirloskar AVI D.I.Engine. Different blends of biodiesel with conventional diesel were tested. The results show all appreciable reduction in emission level and marginal increase in performance when compared with sole fuel. The results concluded that the biodiesel from Karanja oil call be used as an effective alternate in existing diesel engines without any engine hardware modifications.