The main purpose of this study is to utilize a low cost feedstock, CNSL (cashew nut shell liquid) as a source for producing biodiesel and operate it in a diesel engine with and without coating. The further scope of the work delineates to conduct a thermal–stress analysis of the coated engine piston so as to understand the physical mechanism underlying the impact of coating on engine performance characteristics. With this intent, in the current work, a different approach to extract CNSL has been adopted and the extracted CNSL was subjected to double stage trans-esterification to synthesize CNSL biodiesel. In face of its insulating properties, PSZ (partially stabilized zirconia), used in high temperature application, has been designated as the perfect coating material to be applied on engine piston, valves and cylinder head by plasma spray coating technique. From the experimental investigation of CNSLME (CNSL biodiesel – 25% and diesel – 75%) in coated engine, it was observed that the BTE (brake thermal efficiency) of the engine was increased by 6%, when compared to uncoated engine. Further, the emissions such as CO (carbon monoxide), HC (hydro carbon) and smoke were reduced by 27.7%, 7.2% and 14.3%, respectively, at full load condition, while NOX (oxides of nitrogen) emission was increased. Finally, from the simulation study using FEA (finite element analysis), the average temperature, heat flux and thermal stress were noted to be lower for coated piston, confirming the substantial improvement in thermal efficiency in the experimental study.