An experimental study has been carried to use raw Algae oil and its methyl esters in an indirect injection diesel engine. Effects of engine speed, engine load output, injection timing of the algae biofuel and engine compression ratio on the engine output torque, combustion noise (maximum pressure rise rate), maximum pressure and maximum heat release rate have been studied. Raw oil extracted from microalgae and its methyl ester have been evaluated in a Ricardo E6 engine. It has been shown that the algae oil methyl ester’s properties are similar to diesel fuel and its use has been successful in running the diesel engine smoothly. However, its use reduced the engine output torque slightly and increased the combustion noise. Nonetheless, the engine output can be increased and the combustion noise can be reduced by controlling the engine design parameters e.g. injection timing and compression ratio.