Introducing water in a diesel engine has been known to decrease peak combustion temperatures and decrease NOx emissions. This however, has been limited to stationary and marine applications due to the requirement of a separate water supply tank in addition to the fuel tank, thereby a two-tank system. Combustion of hydrocarbon fuels produce between 1.35 (Diesel) and 2.55 times (Natural Gas) their mass in water. Techniques for extracting this water from the exhaust flow of an engine have been pursued by the United States department of defense (DOD) for quite some time, as they can potentially reduce the burden of supply of drinking water to front line troops in theater. Such a technology could also be of value to engine manufacturers as it could enable water injection for performance, efficiency and emissions benefits without the drawbacks of a two-tank system. In this paper, a technique where the exhaust is first cooled via a modified EGR cooler and then passed through a cyclonic separator to separate heavier liquid particles from the exhaust gas flow is demonstrated. This method increases efficiency of recovering liquid water from the exhaust. A prototype system was developed and installed on a VW TDI diesel test engine. Tests were conducted with and without after-treatment and results have been discussed in subsequent sections.