Meeting the emission norms specified by governing bodies is one of the major challenges faced by engine manufacturers, especially without sacrificing engine performance and fuel economy. Several methods and techniques are being used globally to reduce engine emissions. Even though emissions can be reduced, doing so usually entails a deterioration in performance. To address this problem, nanoadditives such as cerium oxide (CeO2) nanoparticles are used to reduce engine emissions while improving engine performance. However, some aspects of the application of these nanoadditives are still unknown. In light of that, three sizes of CeO2 nanoparticles (i.e., 10, 30, and 80 nm) and at a constant volume fraction of 80 ppm were added to a 20% blend of waste cooking oil biodiesel and diesel (B20). A single-cylinder diesel engine operating at a 1500 rpm speed and 180 bar fuel injection pressure was used to compare the performance and emission characteristics of the investigated fuel formulations. The results showed that the addition of CeO2 nanoparticles led to performance improvements by reducing brake specific fuel consumption. Moreover, the catalytic action of CeO2 nanoparticles on the hydrocarbons helped achieve effective combustion and reduce the emission of carbon monoxide, unburnt hydrocarbon, oxides of nitrogen, and soot. Interestingly, the size of the nanoadditive played an instrumental role in the improvements achieved, and the use of 30 nm-sized nanoparticles led to the most favorable performance and the lowest engine emissions. More specifically, the fuel formulation harboring 30 nm nanoceria reduced brake specific fuel consumption by 2.5%, NOx emission by 15.7%, and smoke opacity by 34.7%, compared to the additive-free B20. These findings could shed light on the action mechanism of fuel nanoadditives and are expected to pave the way for future research to develop more promising fuel nanoadditives for commercial applications.