The main objective of the present work is to study the performance, emission and combustion characterstics using single cylinder, four stroke, naturally aspirated, direct injection, water cooled diesel engine with exhaust gas recirculation (EGR) system on LHR engine with Pongamia biodiesel. The experiments are conducted varying the load at rated engine speed of 1500 rpm, and the percentage of EGR used being 5%, 10%, and 15%. It is observed that brake thermal efficiency increases for all fuels without EGR and with EGR up to 75% of load. At this load normal engine running on diesel exhibits 28.68%, followed by biodiesel without EGR, 5%, 10%, and 15% EGR with biodiesel on LHR engine are 27.42%, 24.4%, 27.05% and 27.1% respectively. At full load increasing the percentage of EGR there is an increase in smoke emission and the values being 99.22%, 99.9% and 99.9 for 5%, 10% and 15% EGR respectively. Carbon monoxide and HC emission for Pongamia biodiesel without EGR is lower than that of normal diesel engine for entire load operation. However increasing percentage of EGR there is increase in the CO emissions and the values being 0.925%, 1.32%, 2.53% for 5%, 10%, and 15% EGR respectively. Maximum peak pressure in the cylinder for biodiesel is 72.65 bars against 70.65 bars of that of diesel. A considerable reduction in NO formation is possible at 15% EGR with a little sacrifice in efficiency. Hence 15% EGR is optimum.