The interactive droplet combustion between three adjacent droplets of biodiesel constituents was investigated to obtain flame spread and droplet dynamics behavior enhancement with ethanol and hydroxyl-functionalized multi-walled carbon nanotubes (MWCNT-OH) additives. The experiment was conducted at atmospheric pressure and under normal gravity using spatial and temporal tracking. This study found that ethanol effectively increases flame spread velocity and shortens droplet heating time at a close droplet distance. Meanwhile, MWCNT-OH shortens flame spread induction time at a large droplet distance when thermal conduction time mainly controls the flame spread. Both additives improve the volatility and thermal conductivity of fuel blends, extending the flame spread limit distance with strong reciprocal interaction between droplets and accelerating combustion with a higher burning rate. Different flame spread mechanisms were observed and determined by the fuel additives. Child droplet ejection and microburst flame encourage rapid ignition and flame spread to the next unburned droplet. The puffing and microexplosion mechanisms of the fuel blends were determined by the nucleation type preceding the child droplet ejection. Combining ethanol and MWCNT-OH as fuel additives is the most effective way to improve combustion and flame spread performance because ethanol induces nanoparticle burns at the earlier combustion stage.