Using renewable fuels for diesel engines can reduce both air pollution and dependence on fossil fuels. A computer simulation was constructed to predict the performance, combustion characteristics, and NOx emissions of a diesel engine fuelled with diesel–biodiesel– butanol blends. The simulation was validated by comparing the modelling results against experimental data and a good agreement between the results was found. The fuels used for the validation were diesel (B0), biodiesel (B100), diesel–biodiesel blend (B50), and two diesel–biodiesel–butanol blends with 45% diesel–45% biodiesel–10% butanol (Bu10) and 40% diesel–40% biodiesel–20% butanol (Bu20) by volume. Experimental results showed that the addition of butanol reduced NOx emissions but deteriorated the engine performance. The aim of the current work was the numerical optimization of the different parameters to enhance the engine performance while using butanol to decrease NOx emissions. The engine compression ratio (CR) varied from 14 to 24, in increments of 2. Fuel injection timing (IT) was reduced from 30° before top dead centre (bTDC) to 5° bTDC in increments of 5°. Also, the fuel injection duration (IDur) was extended from 20° to 50° in increments of 10°. Results showed that the increase in the CR improved engine performance for the two investigated fuels, Bu10 and Bu20. The maximum engine brake power (BP), thermal efficiency (BTE), and minimum brake-specific fuel consumption (BSFC) of 1.46 kW, 32.3%, and 0.273 kg/kWh respectively, were obtained when the Bu10 fuel was injected under the optimum conditions of 24 CR, 15° bTDC IT, and 40° IDur. Under these optimum conditions, the BP, BTE, and BSFC improved by 3%–3.5% for Bu10 and Bu20 fuel blends compared with the base engine conditions of a CR of 22, 30° IDur, and 10° bTDC IT. The heat release rate during the premixed phase increased when the IT was advanced, while the mixing-controlled combustion phase was enhanced when the IT was reduced. NOx emissions increased with increasing CR, while both an increase in IDur at constant IT and the reduction of the IT decreased the engine NOx emissions. Under the optimum conditions, the NOx emissions for Bu10 and Bu20 were further decreased by 2.2% and 0.9%, respectively, compared with the experimental results under base engine conditions. Reducing the IT from 15° to 5° bTDC at a CR of 24 and IDur of 40° caused the NOx emissions for Bu10 and Bu20 to decrease by 16%. When the IDur was increased from 20° to 50° at a CR of 24 and an IT of 15°bTDC, the NOx emissions for Bu10 and Bu20 decreased by 12.3% and 11.8%, respectively. The addition of butanol to the diesel–biodiesel blend under optimum conditions showed results that were comparable to those of pure diesel, with a decrease in NOx emissions.