The effect of water in the suction air and in the emulsified fuel on NO formation was analyzed experimentally and theoretically from the point of view of changes in specific heat and the entrained air rate of the burned gas in the combustion chamber. The specific heat was calculated accurately through the chemical equilibrium composition analysis considering the absolute humidity of the suction air, the amount of water added in the emulsified fuel as well as the residual gas fraction. In order to estimate the NO formation rate, the burned gas temperature which is dominated by the excess air ratio and the specific heat of the burned gas was calculated by using the two-zone combustion model.The effect of absolute humidity of the suction air on NO formation is so large that a change in absolute humidity of 0.01 kg/kg results in about 20% reduction of NOx. This large reduction is based on only about 1% change in specific heat of the burned zone gas. With respect to the mechanism of a large NOx reduction due to the water emulsified fuel, it is found by the two-zone model analysis that the entrained air rate of the burned gas is hardly changed by the added amount of water, therefore, the increases in both specific heat and the gas weight due to the added amount of water in the burned zone result in a decrease in the burned gas temperature which reduces NOx largely. On the other hand, an increase of ignition delay due to the added water results in a small negative effect for the NOx reduction although it shows a positive effect for smoke reduction. Furthermore, it is shown that the NOx reduction due to the added water amount of 20% in the emulsified fuel is almost equal to the one due to an increase of 0.01 kg/kg in the absolute humidity of the suction air.