Water-in-oil (W/O) emulsion fuels generate rapid evaporative latent heat owing to the simultaneous vaporization of water particles during the compression (550 °C–700 °C) and combustion processes. Combustion is improved as fuel particulates are emitted during the combustion process. This is due to the reduction in combustion temperature caused by the absorption of this evaporation latent heat and the microexplosions caused by the rapid evaporation of water particulates. This allows the simultaneous reduction of nitrogen oxide and smoke, no requirement of additional devices (unlike pre- and post-treatment technologies), and the use of existing diesel engines without any modification. Therefore, this study applied diesel oil (DO) for automobiles and diesel–water emulsion (DWE) fuel to combustion visualization engines and diesel engines to identify the basic combustion and exhaust characteristics. The results showed that the DWE fuel had a −15.3% reduction in combustion duration compared with DO, which had a −19.6% reduction in nitrogen oxide and a −66.3% reduction in smoke.