With increasingly stringent fuel emission control in some river traffic control zones and inland waters, this paper addresses the problem of substandard diesel fuel emissions, relying on the theoretical basis of numerical simulation of diesel engine in-cylinder combustion. The combustion and emission characteristics of diesel-water-mixed methanol blended fuel are simulated and analyzed based on the AVL FIRE software. The combustion model of the diesel engine was established, and the changes of in-cylinder pressure, temperature, heat release rate, and emission concentration were investigated for D85W10, D85W15, and D85W20 blends respectively, which were compared with diesel. The results show that as the proportion of water in the fuel mixture increases, the in-cylinder temperature gradually increases, the in-cylinder pressure slightly decreases, the heat release rate does not change much, and the NO and Soot emissions decrease.