An experimental investigation has been carried out to produce a stable diesel/water emulsion fuel and use it in a diesel engine under different operating and design conditions. The emulsion stayed stable for up to 30% water in diesel for up to one week and 20% water in diesel for four weeks. The physical properties of the stable W/D emulsions in terms of density, surface tension, and viscosity were measured and investigated. The effect of surfactant concentration, mixing time, and mixer speed has been studied. A computer image analyzer system was used to investigate the water droplets-fuel interaction and the water droplets distribution within the diesel phase. The stable emulsion has been used in an indirect injection Ricardo E6 research diesel engine, and performance and engine roughness parameters have been measured. The effect of water/diesel ratio, engine speeds, loads, fuel injection angle, and engine compression ratio on combustion maximum pressure, maximum pressure rise rate, brake power output, and brake-specific fuel consumption has been studied. The addition of water in diesel generally affected the engine combustion noise, brake power output, and specific fuel consumption