This investigation has been performed to study the effect of water on water microemulsified diesel on the fuel properties and engine performance. Selective tests of engine performance were performed in order to compare the efficiency in the engine between formulated water microemulsified diesel and conventional diesel fuel. The formulated water microemulsified diesel used were diesel/T80/1-penthanol/water 60:20:15:5 wt% (System 1), 55:20:15:10 wt% (System 2) and 50:20:15:15 wt% (System 3). These fuels withstand stability over a month in storage. The result showed that the engine brake specific fuel consumption (BSFC) increased as the water concentration in the system increased. Instead of showing higher fuel consumption than diesel fuel, System 1 and System 2 fuels show good fuel properties that meet the ASTM requirements for cloud point, calorific value and pour point for biodiesel. Further investigation in the gas emission test must be carried out in order to finding its potential as alternative fuels.