In this research work, in phase I, identification of the best emulsified fuel ratio under the water-in-oil (W/O)-type emulsion method using surfactant 1 has been carried out. On the basis of the best performance and less emission, 50% diesel and 50% ethanol [(50D/50E); 100% proof] has been selected as the best emulsified fuel ratio in comparison to the other emulsified fuel ratios of 90D/10E, 80D/20E, 70D/30E, 60D/40E, and diesel no. 2 fuel. Then, in phase II, oxygen-enriched additive dimethyl ether has been added to the selected best ratio of 50D/50E emulsified fuel. Then, the performance and emission tests for diesel, 50D/50E emulsified fuel ratio, and oxygen-enriched additive-added emulsified fuel have been conducted. Finally, it has been found that the oxygen-enriched additive-added emulsified fuel has given the best performance and less emission when compared to the other two fuels. All of the tests have been carried out in a single-cylinder, water-cooled, four-stroke direct-injection (DI) diesel engine. Also, the entire experiment has been carried out at a constant speed of 1500 revolutions/min. In comparison to diesel and the selected best ratio of the emulsified fuels, the oxygen-enriched additive-added emulsified fuel shows an increase in brake thermal efficiency and a decrease in specific fuel consumption, particulate matter, smoke density, and oxides of nitrogen.