Biodiesel is considered as a key prospective renewable energy source in India. Hence, a study was carried out for the improvement of palm kernel oil biodiesel production using a transesterification process at different molar ratios. This study comprehensively examined all aspects of biodiesel from optimum production to the effect of additives on its combustion behavior. The optimum yield condition was validated with the MINITAB-17 software and analyzed using the Taguchi method. Two different additives, 5% diethyl ether (DEE) and 2000 ppm Butylated hydroxyltoluene (BHT), were also experimented. Engine experiments were conducted at constant speed (1500 rpm) and five different engine loads (0, 25, 50, 75 and 100%) on a single-cylinder direct injection diesel engine. Heat release rate, brake specific fuel consumption, brake thermal efficiency, engine emissions, such as CO, HC, NOx, and smoke opacity were analyzed. The maximum palm kernel oil (PKO) biodiesel yields, obtained at 55 °C, for the KOH and NaOH catalysts were 86.69% and 75.21% at the molar ratio of 6:1. B20BHT combustion showed 4.6% higher brake thermal efficiency (BTE). NOx emission was reduced by 19.4%, compared to the diesel fuel values. DEE resulted in higher CO and HC emissions compared to diesel fuel values by 39.2% and 7.6%, respectively, whereas smoke emission was improved by 11.5%.