Biomass based oxygenated fuels have been identified as possible replacement of fossil fuel due to pollutant emission reduction and decrease in over-reliance on fossil fuel energy. In this study, 4v% water-containing ethanol was mixed with (65-90%) diesel using (5-30%) biodiesel (BD) and 1v% butanol as stabilizer and co-solvent respectively. The fuels were tested against those of biodiesel-diesel fuel blends to investigate the effect of addition of water-containing ethanol for their energy efficiencies and pollutant emissions in a diesel-fueled engine generator. Experimental results indicated that the fuel blend mix containing 4v% of water-containing ethanol, 1v% butanol and 5-30v% of biodiesel yielded stable blends after 30 days standing. BD1041 blend of fuel, which composed of 10v% biodiesel, 4v% of water-containing ethanol and 1v% butanol demonstrated -0.45 to 1.6% increase in brake-specific fuel consumption (BSFC, mLkW-1h-1) as compared to conventional diesel. The better engine performance of BD1041 was as a result of complete combustion, and lower reaction temperature based on the water cooling effect, which reduced emissions to 2.8-6.0% for NOx, 12.6-23.7% particulate matter (PM), 20.4-23.8% total polycyclic aromatic hydrocarbons (PAHs), and 30.8-42.9% total BaPeq between idle mode and 3.2kW power output of the diesel engine generator. The study indicated that blending diesel with water-containing ethanol could achieve the goal of more green sustainability.