This paper investigates engine performance with a stable emulsified fuel including frying oil, composed of vegetable oils discarded from restaurants and households. To reduce the oil viscosity, equal proportions of used frying oil and gas oil were mixed and emulsions of this blended fuel and water were prepared. Performance tests of a single cylinder DI diesel engine showed that the Nox concentration and smoke density both reduced without worsening BSFC with water to fuel volume ratios of 15∼30% at a rated output. The engine was also operated with transesterified fuel from used frying oil, the so called “biodiesel”. The BSFC of neat biodiesel was lower than with gas oil at high loads and retarded injection timings, while the smoke density was reduced at all operating conditions. The engine performance with fairly stable emulsions of biodiesel and water was also examined, and emulsified biodiesel with 30 %(vol.) water showed a significant reduction in Nox (1100 to 400ppm) while maintaining the minimum BSFC value achieved with gas oil.