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The first part of the current review highlights the evolutionary nuances and research hotspots in the field of nanoparticles in low carbon fuels. Our findings reveal that contribution to the field is largely driven by researchers from Asia, mainly India. Of the three biofuels under review, biodiesel seems to be well studied and developed, whereas studies regarding vegetable oils and alcohols remain relatively scarce. The second part also reviews the application of nanoparticles in biodiesel/vegetable oil/alcohol-based fuels holistically, emphasizing fuel properties and engine characteristics. The current review reveals that the overall characteristics of the low carbon fuel–diesel blends improve under the influence of nanoparticles during combustion in diesel engines. The most important aspect of nanoparticles is that they act as an oxygen buffer that provides additional oxygen molecules in the combustion chamber, promoting complete combustion and lowering unburnt emissions. Moreover, the nanoparticles used for these purposes exhibit excellent catalytic behaviour as a result of their high surface area-to-volume ratio—this leads to a reduction in exhaust pollutants and ensures an efficient and complete combustion. Beyond energy-based indicators, the exergy, economic, environmental, and sustainability aspects of the blends in diesel engines are discussed. It is observed that the performance of the diesel engine fuelled with low carbon fuels according to the second law of efficiency improves under the influence of the nano-additives. Our final part shows that despite the benefits of nanoparticles, humans and animals are under serious threats from the highly toxic nature of nanoparticles.