The engine performance and emission characteristics of diesel, cerium oxide, and diesel combined with ethanol were examined on a variable compression diesel engine. In order to discover the best process response with a limited number of trial runs, the Taguchi method and grey relational analysis were utilized to address the problem. Using the grey relational grade and signal-to-noise ratio as performance indices, it was anticipated that a specific set of input parameters would result in the best response characteristics. It was discovered that 50% of the mixture works well in a diesel engine without dramatically altering its emissions and performance characteristics.