Simultaneously reducing smoke and nitrogen oxide (NO x) emissions of diesel engines is an important problem in exhaust emission control. Use of ethanol—diesel fuel blend may be an alternative way to reduce both these emissions at the same time without modification of any engine-operating parameters. In this study the effect of an ethanol—diesel fuel blend on the simultaneous reduction in smoke and NO x emissions in a direct-injection turbocharged diesel engine with low-heat-rejection application was investigated. For this purpose, ethanol (10 vol/%) diesel fuel blend was used as the fuel, and the cylinder head, valves, and pistons of the test engine were coated with a yttria stabilized zirconia (Y2O3—ZrO2) layer 0.35 mm thick over a nickel-chromium—aluminium bond coat 0.15 mm thick by the atmospheric plasma spray coating method. The results of the engine tests have shown that, with ethanol addition, the NO x emission was decreased by 71.3 per cent at 1200 r/min and by 40.7 per cent at 2200 r/min, the smoke emission was decreased by 39.8 per cent at 1200 r/min and by 20.3 per cent at 2200 r/min, the excess air ratio was increased by 43.9 per cent at 1200 r/min and decreased by 7.9 per cent at 2200 r/min, and the oxygen (O2) emission was increased by 27.3 per cent at 1200 r/min and decreased by 8.6 per cent at 2200 r/min, in comparison with the standard engine.