This experimental study focused on improving performance characteristics of a low-heat rejection (LHR) diesel engine operating with biodiesel fuel. To ensure LHR conditions, the cylinder head and valves of the test engine were coated with a Y(2)O(3)-ZrO(2) (yttria-stabilized zirconia) layer of 0.35 mm thickness over a NiCrAl bond coat of 0.15 mm thickness. The fuel used in the engine tests was produced from sunflower oil with transesterification methods. The engine test results showed that brake-specific fuel consumption (BSFC) and brake thermal efficiency were improved with biodiesel usage and thermal barrier coating (TBC) application. Further, exhaust gas temperature was decreased with use of biodiesel, while it was increased with TBC application. DOI: 10.1061/(ASCE)EY.1943-7897.0000037. (C) 2011 American Society of Civil Engineers.