Tea tree oil is an essential oil that is produced by steaming the leaves of Melaleuca alternifolia, a plant that is native to Australia. Tea tree oil can kill bacteria, so if you apply it as a topical treatment to acne it can significantly reduce the size and number of inflamed and non-inflamed acne lesions. Tea tree oil can cause itching, stinging, burning, and dryness in those that have more sensitive skin types. Few studies have been done on tea tree oil and acne, but those that have been done definitely suggest it is just as effective if not more than Benzoyl Peroxide and causes less irritation.
You should only apply diluted tea tree oil acne prone areas. The studies that have been done used a 5% tea tree oil solution. So if you'd like to make your own solution you could mix 5 parts tea tree oil for every 95 parts water.