Cerium oxide (CeO2) nanoparticle was added to prepared water in diesel Nano-emulsion tostudy its effect on exhaust emission and performance of diesel engine characteristics betweenneat diesel, Nano-emulsion and Nano-emulsion+ CeO2. Since water and diesel are immiscible,mixed span and Tween 80 surfactants are used for preparation of stable Nano-emulsion.Central composite design, Response surface method is used for optimization process ofpreparation of Nano-emulsion at optimum suitable condition designed by Design Expertsoftware.Dispersed Water present of Nano size effect directly on diesel fuel characteristics incompression ignition engine, contributes on reduction of NOx and smoke emission and betterthermal efficiency, but accompanied by little increase in HC and CO emission and fuelconsumption.CeO2 nanoparticles at three levels (50, 100 and 150 ppm) to optimize Nano-emulsion addedand mixed by high energy homogenizer. All diesel, Nano-emulsion and Nano-emulsion+ CeO2are examined by Engine run at 400 bar and 1500 rpm with different load.Improvement in reduction fuel consumption and thermal efficiency are obtained. Exhaustemission (NOx, HC and CO) and smoke reduced much more are observed with CeO2nanoparticle.