Diesel-water emulsion has been used in diesel engine combustion for a long time with encouraging results, but the point of efficiency and NOx trade-off represent a highly challenging task for diesel engines. A new approach was used in this study. The new blends which were obtained by mixing diesel-neem oil biodiesel blend (70:30 by volume) with water (5% by volume), span-80 surfactant (1% by volume), and cetane enhancing additive of Di-tertiary butyl peroxide (0.5% by volume). The blend is designated as B3. This chapter investigates performance and emission characteristics of a single cylinder diesel engine running on B3 fuel. Performance and emission of the engine fueled by B3 fuel results were compared with diesel (D), diesel-biodiesel blend (B1), and diesel-biodiesel with water emulsion through surfactant (B2). B3 fuel had better performance and improved emissions than B1 fuel and diesel fuel, with NOx emission especially reduced by up to 35%.