The increasing demand for energy and the environmental concerns associated with conventional fossil fuels have accelerated the search for sustainable alternatives for internal combustion (IC) engines. This study presents a comparative review of IC engine performance, combustion characteristics, and emission profiles when operated on alternative fuels, specifically biodiesel and ethanol blends. Biodiesel, derived from renewable biological sources, and ethanol, a bio-based alcohol fuel, offer cleaner combustion and reduced greenhouse gas emissions compared to petroleum-based fuels. The paper evaluates key performance parameters such as brake thermal efficiency, specific fuel consumption, and power output, alongside emission characteristics including carbon monoxide, hydrocarbons, nitrogen oxides, and particulate matter. It also examines how fuel properties—such as viscosity, calorific value, oxygen content, and volatility—affect engine behavior. A comparison of experimental and simulation-based studies is presented to highlight variations in findings and identify consistent trends. While biodiesel generally improves lubricity and reduces particulate emissions, ethanol blends enhance combustion efficiency but may affect engine stability at higher concentrations. Challenges related to fuel compatibility, cold starting, and material corrosion are also discussed. The study concludes by identifying research gaps and suggesting future directions for optimizing engine design and fuel formulations to improve performance and sustainability.