Due to its potential of reducing NOx and soot emissions simultaneously while improving thermal efficiency, water emulsified diesel is considered as one of the most promising fuels for compression ignition engines. In this study, spray and combustion characteristics of neat diesel and water emulsified diesel with various water contents (10%, 20% and 30% by mass) were investigated. The influence of micro-explosion on high pressure spray characteristics of water emulsified diesel was optically observed and discussed. Experiments were conducted in a constant volume combustion chamber with a high-speed schlieren system to capture the spray and combustion processes. The results show that water content plays a significant role in affecting spray and combustion characteristics of water emulsified diesel. Under non-evaporating condition, the spray tip penetration increases with the water content but the corresponding spray angle decreases with the water content. Such an effect was found diminishing under evaporating condition. The spray volume of test fuels increases from non evaporating to evaporating condition, and the relative volume increase of water emulsified diesel is at least 5 times higher than that of neat diesel. Both the ignition delay and flame lift-off length increase with water content. Consequently, the integrated natural flame luminosity decreases with the increase of water content. In addition, indirect evidences have proven that the occurrence of micro-explosion can enhance the breakup and evaporation processes of water emulsified diesel spray, and the use of water emulsified diesel can effectively reduce soot emission.