This study aims at producing hydroxy (HHO) gas using a dry cell electrolysis setup and utilising it along with orange oil in a diesel engine. First an electrolyser was designed considering the optimised values of the material (SS316L), electrolyte (NaOH), and electrode gap (2 mm). Then the biodiesel obtained from the waste orange peels, after transesterification, were blended with diesel at 25 and 50% by vol. The HHO gas was produced by the water electrolysis method by a plate-type electrolyser having a maximum production rate of 2.5 LPM with NaOH as the electrolyte. HHO gas was inducted through the inlet manifold along with the fresh air at a constant rate of 2 LPM with both the biodiesel blends. The performance, emission, and combustion outcomes of the single cylinder diesel engine for different load conditions (0–100%) were tested for all the blends with and without HHO addition. The results showed a considerable increase in brake thermal efficiency of 1.54% at full load condition, with a noticeable decrease in fuel consumption by 11.1% compared to conventional diesel fuel, was achieved for the O25 blend with HHO induction. Moreover, emissions like hydrocarbon, carbon monoxide and smoke were reduced by 17.6, 29.5, and 12.1%, respectively. However, the improvement in combustion outcomes led to the increase in nitrogen oxides emission by 9.67%. This study helped to understand the production process of HHO gas by dry cell electrolyser and its effect on the blend of orange oil methyl ester and diesel in dual-fuel mode.