Hydroxy gas (HHO) is a gas produced by the electrolysis of water, which involves breaking down water molecules (H2O) into hydrogen (H2) and oxygen (O2) gases. When the electricity used for electrolysis comes from renewable energy sources, the resulting hydrogen can be classified as 'green hydrogen.' Therefore, by using renewable green energy sources to produce HHO gas, its application in internal combustion engines can promote clean combustion and enhance sustainability. This study explores the enhancement of performance and emission characteristics in a two-stroke Unmanned Aerial Vehicle (UAV) engine using Hydroxy gas (HHO), a green energy source produced via water electrolysis. The primary objective is to improve engine efficiency and reduce environmental impacts by employing HHO in dual-fuel mode with JP5 aviation fuel. Addressing a clear research gap in the literature, this study is the first to evaluate the energy, exergy, exergoenvironmental, and exergoeconomic aspects of a two-stroke, air-cooled UAV engine using the JP5+HHO fuel blend. Experiments were conducted at five shaft speeds (3250, 3750, 4500, 5250, 6250 rpm) and four HHO flow rates (1.0, 1.5, 2.0, 4.0 lpm). The results demonstrate that incorporating HHO gas leads to a significant improvement in engine performance, with a 10% average reduction in Brake Specific Fuel Consumption (BSFC) and a 10% increase in exergy efficiency. Additionally, the JP5+HHO 4 lpm mixture reduces exergy destruction by approximately 10% and increases heat transfer exergy by 3–10%. On the environmental front, while HHO slightly increases CO2 emissions, the exergoenvironmental impact rises by a manageable 4%. Importantly, the high HHO flow rate (4 lpm) achieves a 2% average reduction in both exergoenvironmental and exergoeconomic impacts. These findings underscore the potential of HHO as a sustainable fuel source, offering both performance gains and reduced environmental and economic costs.