Managing waste plastic is becoming a severe challenge. The industry and researchers have been looking at various opportunities in line with circular economy principles for effective plastic waste management. In that context, plastic waste valorization to oil as a substitute to fossil fuel has gained recent attention. In the literature, there exist few studies showing the use of oil derived from waste plastics in blends with other conventional fuels in compression ignition (CI) engines; however, studies on CI engines that use 100% waste-derived fuels are limited. Additionally, the exhaust gas recirculation (EGR) concepts and the use of nano-coated chambers (like pistons, valves and cylinders heads) have been gaining interest purely from the engine performance enhancement perspective in recent years. Therefore, this study investigates engine performance by combining exhaust gas from the EGR technique and waste plastic oil (WPO) as inputs, followed by thermal coatings in the CI engine chambers for performance enhancement. The experimental setup of the engine is developed, and the engine’s piston, valve and cylinder heads are coated with Al2O3-SiO4 material. The CI engine’s energy, emission, and combustion characteristics are tested, followed by a scenario analysis compared with diesel-only fuel. The tested scenarios include a WPO + Al2O3-SiO4, WPO + Al2O3-SiO4 + 10% EGR, and WPO + Al2O3-SiO4 + 20% EGR. The results show that the piston crown’s thermal coating increased the combustion performance. Significant impacts on the carbon monoxide, hydrocarbons, and smoke characteristics are observed for different %EGR rates. The results also showed that the cooled EGR engine has decreased nitric oxide emissions. Overall, the results show that WPO combined with exhaust gas could be a potential fuel for future CI engines.