Using the water with proper ratio in the mulsified fuel of premium diesel can decrease the Smoke and NOx concentrations in the exhaust gas. Biodiesel blending in the premium diesel can equally decrease the smoke concentration in the exhausr gas as well, but the NOx concentration is increased. Through engine dyno experimental results shows, the fuel of blending 8% water and 20% biodiesel in the premium diesel will has no influence on prototype diesel engine, although the BSFC is increased, but both of the concentrations Smoke and NOx can be decreased. Additionally, using the blending fuel of water and biodiesel in the premium diesel can decrease the dependence on premium diesel of petroleum.