Abstract. Introduction of water in the fuel gave a significant effect to the reduction of pollutant such as NO x emission. In this work, water/diesel microemulsion fuels were prepared using compositional method by mixing water and diesel in the presence of non-ionic surfactant and co-surfactant. The effects of water composition on the partial ternary phase diagram were studied at 5%, 10%, 15% and 20% (w/w). The physical stability of the microemulsion was investigated at 45°C over a period of one month. The optimum formulae obtained were diesel/T80/1-penthanol/water 60:20:15:5 wt% (System 1), 55:20:15:10 wt% (System 2), 50:20:15:15 wt% (System 3) and 45:20:15:20 wt% (System 4). Physicochemical characterizations of optimum formulae were studied. The results showed that water content has a significant effect to the formation of microemulsion, its stability, droplet size and viscosity.