Results of exhaust emissions and lube oil monitoring, of a diesel engine fueled with Malaysian palm oil diesel (POD) [POD is palm oil Methyl esters] and ordinary diesel (OD) emulsions are compared with those obtained when 100 % POD and OD fuel were used. The POD and OD fuel were obtained in commercial form, and their emulsions were created by mixing POD and OD fuel to contain 5 and 10 % of water by volume. Promising results have been obtained. Neither the lower cetane number of POD fuel nor its emulsification with water presented obstacle to the operation of diesel engine during steady state engine tests and the twenty-hour endurance tests. Polymerization and carbon deposits on fuel injector nozzles were monitored. Engine performance and fuel consumption for POD and its emulsions are comparable with those of OD fuel.Accumulations of wear metal debris in crank-ease oil samples were lower with POD and emulsified fuels compared with baseline OD fuel. Both OD and POD emulsions with 10 % water by volume show promising tendency for wear resistance. The exhaust emissions for POD and emulsified fuels are found to be much cleaner, containing less CO, CO2, HC, NOx, SOx and smoke level.