This study involves the investigation of municipal solid waste (MSW) based biofuel in order to demonstrate its utilization as a diesel blendstock in a compression ignition (CI) engine. The biofuel was produced from the Hydrothermal Liquefaction (HTL) process. The tested biofuels represented both distilled (known as nonupgraded HTL biofuel) and hydrotreated (known as upgraded HTL biofuel) fuels, obtained from raw bio-crude. The effects of the HTL biofuel and diesel blending on the combustion and emission characteristics were investigated. A comparative study of nonupgraded and upgraded HTL biofuel in terms of combustion and emissions was conducted. The upgraded HTL biofuel was blended with reference diesel (RD) by 5%, 10%, and 40% by weight, respectively, and the nonupgraded HTL biofuel was blended with RD by 10% by weight. The experiments were conducted in an optically accessible compression ignition chamber (OACIC) with engine-like thermodynamic conditions. The parameters were recorded at a constant speed and at fixed thermodynamic conditions. The heat release rate (HRR), in-cylinder pressure, ignition delay (ID), flame lift-off length (FLOL), and in-flame soot were measured. The PM, CO, NOx, and CO2 were also recorded. In summary, the HTL blends exhibited a close resemblance to the reference diesel across a range of combustion parameters and regulated emissions. Furthermore, the upgraded HTL blends outperformed the nonupgraded blend in terms of both combustion characteristics and emissions.