This manuscript evaluates the effect of emulsified diesel fuel on the engine performance and emission for a water-cooled, four stroke, four cylinders and direct injection diesel engine. The water content of emulsified diesel fuels is in the range of 0–10% by volume. During experiments, the engine speed was varied from 1600 rpm to 1900 rpm. It is noted that that the emulsion fuel containing 2% water content had greater engine power and torque values and lower exhaust emissions. The overall engine noise emission was found to increase with engine speed. It also could be seen that the emulsified diesel fuel combustion did not increase the engine noise comparing to neat diesel fuel. From this study, it could be concluded that using this type of emulsion could improve the engine performance with the decrease in the exhasut emission. Therefore, it could be a good alternative for using in diesel engines.