Research in the field of alternative, clean and renewable bio-fuels has increased dramatically in recent years for performance improvement, emission control and running cost reduction in internal combustion engines due to continuously increasing prices of conventional fuels, depletion of fossil fuels and environmental protection. In this work, a direct injection VCR diesel engine was used in experimental investigations for determining the combustion characteristics of D–NM–DEE blends at different compression ratios. By exhaust emission and performance analysis of the diesel engine at peak load and standard compression ratio (18.5), D–NM2.5–DEE7.5 (nitromethane 2.5%, diethyl ether 7.5% and diesel 90%) blend was identified as the best fuel blend among all fuel blends and pure diesel. Furthermore, all the considered fuels with different CR at peak load were ranked by the Entropy–TOPSIS method. From the analysis, D–NM2.5–DEE7.5 at CR–19.5 (ranked first with RCi-0.922231) was found as the best fuel blend among all fuel blends and different compression ratios considered with similar experimental conditions. By the comparison of the best fuel blend (D–NM2.5–DEE7.5 at CR 19.5) with pure diesel (at standard CR 18.5), a significant improvement in engine performance, and reduction in emission and fuel cost was achieved.