The effects of oxygen storage properties of combustion catalysts on pollutant emissions and engine performance, using an automated diesel engine, were studied. A novel microemulsion-based protocol was utilized to disperse the catalysts in the diesel fuel. The catalyst-microemulsion (catalyst-mu E) system remains stable upon its addition to the diesel fuel. Different concentrations of iron doped cerium oxide (0, 5, 10, and 20 mol %) were synthesized in microemulsion systems and characterized by dynamic light scattering (DLS) and UV visible spectrometry. Various characterization techniques were employed. X-ray diffraction (XRD) was used to show the effect of iron presence on crystallites structure of the catalysts. Hydrogen temperature programed reduction (H-2-TPR) and oxygen temperature programed desorption (02-TPD) were utilized to quantify the total oxygen storage capacity (OSC) and types of oxygen species, respectively. The effects of oxygen storage capacity and oxygen types of the samples on emission of the pollutants and performance of engine were studied afterward. Regarding the emissions, it is shown that Ce0.95Fe0.05O2-alpha, catalyst decreased the soot, unburned-hydrocarbons (HC), and carbon monoxide (CO) by 20.0, 57.7, and 26.6%, respectively. It is also shown that the catalyst with more OSC and more mobile oxygen (the so-called alpha-oxygen) was more influential in decreasing the mentioned pollutants. The results of in-cylinder pressure and heat release rate analyses indicate that the oxygen storage/release capacity of the catalysts can improve the burning process by decreasing the ignition delay with no significant change in the combustion duration. The results also reveal that addition of the catalysts decreases the brake specific fuel consumption (BSFC) by 3-4% on average and, therefore, improving the fuel economy.