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A test series was conducted on a six-cylinder diesel engine to study the impacts of controlled factors (i.e., oxygen content of the combustion air, water content of the fuel, fuel-flow rate, and fuel-injection timing) on engine performance and emissions using Taguchi techniques. Separate experiments were conducted using a commercial-grade No. 2-diesel and a lower-grade No. 6-diesel fuel. This paper reports the test results for No. 6 fuel. Oxygen enrichment improved the combustion process with the lower-grade fuel. There was no observable change in turbocharger performance due to oxygen enrichment. The results showed significant reductions in smoke and particulate emissions, a small increase in thermal efficiency and a large increase in NOx emissions when oxygen-enriched air was used. The effect of water-emulsified fuel on NOx emissions was negligible.