Pollution from diesel engines affects negatively the environment. As a result, there is a worldwide concern about reducing the pollutants emitted by diesel engines. In comparison to diesel fuel, biodiesel combustion produces reduced carbon monoxide (CO2) and unburned hydrocarbon (UHC) emissions, but higher nitrogen oxides (NOx) emissions. The current study is to investigate the thermal and chemical effect of exhaust gas recirculation (EGR) on features of a diesel engine for environmental sustainability. The punnai oil was produced from kernels of punnai seeds and transesterified in two phases using alcohol with the existence of a catalyst. The higher viscosity of punnai oil biodiesel is diluted by mixing it with diesel fuel. Our previous investigation indicated that neat punnai oil biodiesel is a potential fuel; however, the findings showed that the addition of diesel is necessary to obtain acceptable engine performance. In this study, punnai oil biodiesel was mixed at a rate of 20% with diesel (B20) and run in a diesel engine with varied EGR rates under five different engine loads. This combined impact enhanced the maximum heat release rate (HRR) and maximum combustion pressure, according to the findings. The premixed burning fractions were commonly higher at all engine loads, whereas the diffusion combustion fractions were lower. When the centre of the HRR changed toward the top dead centre (TDC), combustion durations remained rather constant. The experimental results revealed B20 blend at 10% EGR flow rate produced 6.57% lower BTE, 37.04% higher BSEC, 2.47% higher EGT, 5.13% lower CO, 31.11% higher CO2, 3.13% higher UHC, 8.36% lower NOx and 4% higher smoke opacity when compared with diesel in a standard diesel engine.