Lubrication is the primary solution to reduce friction and wear. However, conventional lubricants cause pollution when not properly disposed of or due to accidental leaks. Therefore, environmentally friendly lubricating fluids are welcome in any application where they can meet the performance requirements. This study suggests using coffee oil produced from spent coffee grounds to improve the lubricity of water-based lubricating fluid. Bis(2-hydroxyethyl)ammonium oleate protic ionic liquid facilitates the dispersion of coffee oil in water. Kinematic viscosity, wettability, corrosion prevention, and lubricity tests were performed to evaluate the tribological properties provided by these additives. It was observed that a higher amount of coffee oil could be dispersed with the introduction of a higher amount of protic ionic liquid. In this study, ten wt.% of coffee oil was successfully dispersed using one wt.% of protic ionic liquid. Introducing additives increased dispersions’ viscosity, improved wettability, provided protection against corrosion, and reduced wear and friction. It was proposed that polar molecules of protic ionic liquid were responsible for most of the improvement, while coffee oil contributed by increasing viscosity. Further studies could be directed toward determining rational concentration to meet each particular application’s requirements.