This study paves the way on reducing smoke emission and NO_x emissions of research diesel engine by detailing the effect of water addition in biodiesel. Fuel samples were prepared with different concentrations of water in orange peel oil biodiesel (94% waste orange peel oil biodiesel + 4% water + 2% Span 80 (WOPOBDE1) and 90% waste orange peel oil biodiesel + 8% water + 2% Span 80 (WOPOBDE2). Span 80 was employed as a nonionic surfactant, which emulsifies water in biodiesel. Experimental results revealed that the nitrogen oxides and smoke emission of orange peel oil biodiesel emulsion were reduced by 11%–19% and 3%–21%, respectively, compared to that of neat orange peel oil biodiesel (WOPOBD). In addition, the introduction of orange peel oil–water emulsions in the diesel engine considerably reduced the emissions of unburned hydrocarbons and carbon monoxide. The overall hydrocarbon emission of WOPOBDE2 was 12.2% lower than that of WOPOBD and 16.3% lower than that of diesel. The overall CO emission of WOPOBDE2 was 17% lower than that of base fuel (WOPOBD) and 21.8% lower than that of diesel. Experimental results revealed that modified fuel had higher brake thermal efficiency and lower brake specific fuel consumption than that of base fuel at all engine brake power levels.