Oil was extracted from Pongamia Pinnata seeds collected in the northern region of Pakistan. This oil was used to prepare biodiesel by transesterification with methanol. Composition and properties of the Pongamia Pinnata methyl esters were determined. Neat biodiesel B-100 and B-50 blends were tested in a direct-injection air-cooled diesel engine. It was observed that with biodiesel specific fuel consumption, brake efficiency, and oxides of nitrogen emissions increased, where as carbon monoxide and unburned hydrocarbons emissions and exhaust opacity decreased as compared to diesel fuel. About a 10% increase in free acceleration time from idle to rated speed was observed when the engine was fueled with the neat biodiesel.