The aim of this study was to evaluate the effects of the inclusion of palm kernel oil (PKO) in a lamb diet on nutrient intake, digestibility, ingestive behavior, nitrogen balance, blood metabolites, rumen fermentation parameters, and animal performance. Three experimental trials were conducted. The treatments consisted of varying levels of PKO included in the diet, with PKOzero = no PKO inclusion, PKO1.3 = 1.3% addition, PKO2.6 = 2.6% addition, PKO3.9 = 3.9% addition, and PKO5.2 = 5.2% addition, based on the total dry matter (DM) of the diet. With the inclusion of PKO in the diet, linear decreases in DM (p < 0.001), crude ash (p < 0.001), crude protein (CP) (p < 0.001), neutral detergent fiber (NDF) (p < 0.001), nonfibrous carbohydrate (NFC) (p < 0.001), and total digestible nutrient (TDN) (p = 0.021) intake were observed, as was an increase in ether extract (EE) intake (p < 0.001). The digestibility coefficients of NDF and NFC were not affected by PKO addition to the diet. However, the digestibility of DM (p = 0.035), EE (p < 0.001), CP (p < 0.001), and TDNs (p < 0.001) increased when PKO was added to the lambs’ diet. Reductions in N intake (p < 0.001), fecal nitrogen excretion (p < 0.001), and microbial protein production (p < 0.001) were noted with increasing PKO levels. Serum cholesterol increased (p < 0.001) while serum GGT enzyme concentrations in the blood decreased (p = 0.048) with increasing PKO levels. PKO addition had no effect on total weight gain and average daily gain; however, feed conversion improved (p = 0.001) with increasing PKO levels. The intake, digestibility, ingestive behavior, and growth performance of lambs with PKO1.3 added to their diet were similar to animals that did not receive PKO, meaning that PKO could be an alternative energy source for growing lambs because it does not harm animal performance and can lower the cost of feed.