The strongly correlated spin-electron system on a diamond chain containing localized Ising spins on its nodal lattice sites and mobile electrons on its interstitial sites is exactly solved in a magnetic field using the transfer-matrix method. We have investigated in detail all available ground states, the magnetization processes, the spin-spin correlation functions around an elementary plaquette, fermionic quantum concurrence and spin frustration. It is shown that the fermionic entanglement between mobile electrons hopping on interstitial sites and the kinetically-induced spin frustration are closely related yet independent phenomena. In the ground state, quantum entanglement only appears within a frustrated unsaturated paramagnetic phase, while thermal fluctuations can promote some degree of quantum entanglement above the non-frustrated ground states with saturated paramagnetic or classical ferrimagnetic spin arrangements.