The effect of compression ratio on combustion and performance of single cylinder four-stroke variable compression ratio engine, when fueled by pre- heated palm oil and its 5, 10, 15 and 20% blends with diesel, has been investigated and compared with petroleum based diesel fuel (PBDF). The suitability of palm oil (pre-heated at 90 degrees C) as fuel has been studied in this work. The brake thermal efficiency at full load in pre-heated palm oil blends and PBDF has been analyzed and the blend O20 (20% preheated palm oil + 80% diesel) is found to give maximum thermal efficiency at the highest compression ratio. Also, the specific fuel consumption of O20 blend is found to be lower than that of PBDF at a higher compression ratio. Exhaust gas temperature is low for all the blends as compared to PBDF. The emission of carbon monoxide and hydrocarbon decreases with an increase in blending ratio and compression ratio. Also CO2 emission is found to be higher than in PBDF. The combustion parameters of testing fuel blends are also investigated and the results are found to be closer to that of PBDF at a higher compression ratio and full load. The engine performance is found to be optimum using O20 as fuel at 20:1 compression ratio during full load condition.