Because of environmental problems, it becomes necessary to develop alternative fuels that give engine performance at par with diesel. Among the alternative fuels, biodiesel and its blends hold good promises as an eco-friendly and the most promising alternative fuel for Diesel engine. The properties of biodiesel and its blends are found similar to that of diesel. Many researchers have experimentally evaluated the performance characteristics of conventional Diesel engines fueled by biodiesel and its blends. However, experiments require enormous effort, money and time. Hence, via finite-time thermodynamics simulation, an air-standard Diesel cycle model with heat transfer loss and variable specific heats of working fluid is analyzed to predict the performance of Diesel engine. The effect of compression ratio, cut-off ratio and fuel type on output work and thermal efficiency is investigated through the model. The fuels considered for the analysis are conventional diesel, rapeseed oil biodiesel and its blend (20 % biodiesel and 80 % diesel by volume). Numerical simulations showed that the output work and thermal efficiency of the engine decrease with increase of cut-off ratio for all fuels. Also, the model predicts similar performance with diesel and biodiesel blend which means that the biodiesel blend (20 % biodiesel and 80 % diesel by volume) could be a good alternative and eco-friendly fuel for conventional Diesel engines without any need to modify the engine.