This study investigates the performance of biodiesel produced from distilled waste tire pyrolytic oil through transesterification as a lubricant additive for aqueous drilling fluid systems. Aqueous-based drilling fluids have a high coefficient of friction as compared to oil-based drilling fluids. The inclusion of a biodiesel additive was for smooth application/operation. The friction-reducing physicochemical properties of the additive were analyzed and compared with the guidelinesof the United States specification (ASTM Standard) and the European specification (EN Standard). The chemical structure of the produced biodiesel was analyzed using gas chromatography–mass spectrometry (GC-MS). The results show that the distilled waste tire pyrolytic oil contains aliphatic, naphthenic, and aromatic hydrocarbons. The free fatty acid value reduced from 5.6% (for pyrolytic oil) to 0.64% after the transesterification process. A saponification value of 203.36 mg/g was recorded for the pyrolytic oil, and this value was also reduced to 197.35 mg/g after the transesterification process. The kinematic viscosity was reduced from 11.2 to 5.3 mm2/s for the obtained biodiesel, and this value is within the ASTM D6751 and EN 14214 standard values (1.9 to 6 and 3.5 to 5 mm2/s, respectively). The cetane number (47.75) was obtained for the biodiesel, and this is within the minimum range stipulated in ASTM D6751 guidelines. The produced biodiesel’s chemical structure analysis using GC-MS shows that it comprises of decanoic acid methyl ester and methyl ester. Furthermore, comparative analysis of the quantified friction-reducing physicochemical properties of the additive shows that the biodiesel produced from the distilled pyrolytic oil is a suitable additive for the improved lubrication of the friction-prone metallic parts of drill bits when water-based drilling fluids are employed for drilling oil and gas wells.