The effect of iron-doped cerium oxide (FeCeO2) nanoparticles as a fuel additive was experimentally investigated with waste cooking oil methyl ester (WCOME) in a four-stroke, single cylinder, direct injection diesel engine. The study aimed at the reduction of harmful emissions of diesel engines including oxides of nitrogen (NOx) and soot. Two types of nanoparticles were used: cerium oxide doped with 10% iron and cerium oxide doped with 20% iron, to further investigate the influence of the doping level on the nanoparticle activity. The nanoparticles were dispersed in the tested fuels at a dosage of 90 ppm with the aid of an ultrasonic homogenizer. Tests were conducted at a constant engine speed of 2000 rpm and varying loads (from 0 to 12 N.m) with neat diesel (D100) and biodiesel–diesel blends of 30% WCOME and 70% diesel by volume (B30). The engine combustion, performance, and emission characteristics for the fuel blends with nanoparticles were compared with neat diesel as the base fuel. The test results showed improvement in the peak cylinder pressure by approximately 3.5% with addition of nanoparticles to the fuel. A reduction in NOx emissions by up to 15.7% were recorded, while there was no noticeable change in unburned hydrocarbon (HC) emissions. Carbon monoxide (CO) emission was reduced by up to 24.6% for B30 and 15.4% for B30 with nano-additives. Better engine performance was recorded for B30 with 20% FeCeO2 as compared to 10% FeCeO2, in regard to cylinder pressure and emissions. The brake specific fuel consumption was lower for the fuel blend of B30 with 10% FeCeO2 nanoparticles, in low-to-medium loads and comparable to D100 at high loads. Hence, a higher brake thermal efficiency was recorded for the blend in low-to-medium loads compared to D100.