Cottonseed oil was transesterified to convert into biodiesel. The optimum catalyst concentration, amount of methanol used per liter of oil, time taken by the reaction, and temperature were found. This cottonseed oil-derived biodiesel was tested in a direct injection, naturally aspirated, single-cylinder diesel engine. The diesel engine was operated from no load to full load condition. Effect of this biodiesel on engine parameters, namely, fuel consumption, electrical efficiency, lower heating value, and engine speed, was examined. Also, the physical and chemical properties, including specific gravity, moisture content, refractive index, acid value, iodine number, saponification value, and peroxide value of the methyl esters used in this study, were estimated. Based on electrical efficiency, the methyl esters obtained from cottonseed oil were found to be a good alternate fuel in internal combustion engines with electrical generators.