This paper reports on the effect of water emulsified diesel fuel combustion on brake thermal efficiency, brake specific fuel consumption and NOx and hydrocarbon emissions in a diesel engine. The experiments were conducted on a single cylinder four stroke cycle direct injection diesel engine at constant speed with a fuel injection pressure of 200 bars. Tests were conducted using commercial diesel fuel and diesel fuel with 10% and 20% water by volume. From the test results, it was found that the water emulsification has a potential to improve brake thermal efficiency and brake specific fuel consumption. The NOx and HC emissions were found to decrease with increase in water percentage in the emulsified diesel.