The utilization of vegetable oils as a source of renewable fuels has attracted much attention. However, the high viscosity of vegetable oils limits their long-term application. The microemulsion technique of vegetable oils has the advantages of viscosity reduction and environment-friendly properties. In this study, the phase behavior of the microemulsion and the solubilization mechanism of water and castor oil in diesel were researched to evaluate the solubilization capacity of water and castor oil in diesel under given conditions. The proper concentration of rhamnolipid (RL) was SO g/L. N-octanol was certified as an ideal co-surfactant with the optimal co-surfactant/surfactant (C/S) mass ratio (w/w) of 0.60. The optimum castor oil/diesel (V/D) volume ratio (v/v) was 0.18. Moreover, fuel properties of water-containing castor oil/diesel (WCD) microemulsion were identified, including density, dynamic viscosity, cloud point, pour point, water content, corrosivity, heating value, and elemental composition. The thermal and storage stability of WCD microemulsion were also conducted. Compared with castor oil, WCD microemulsion has lower viscosity, which presents similar fuel characteristics as diesel.