Biodiesel can be utilised in diesel engines without major alteration to the engine; however, its use can lead to engine oil dilution through biodiesel leaking and scraping to the engine oil pan. The objective of this research is to investigate the contamination of biodiesel in engine lubricant oil, and determine the relationship between engine performance and emission for three different blends of palm methyl ester (B10, B20, and B30). To simulate the contamination, the engine oils were blended with biodiesel fuels at 5%, 10%, 15% and 20% by volume and these mixtures were tested on four-ball test equipment. An air-cooled diesel engine was used to analyse the influence of the three biodiesel blends on the output and emission of the diesel engine. The results show that both coefficient of friction and wear scar diameter increased with the increase of biodiesel percentage. The results of engine performance during both sweep test and step test showed that the variation of torque and power among the blends at a particular speed was within a very narrow range.