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The use of the oxygen storing capacity (OSC) of CeO₂ to enhance the conditioning of engine exhaust is being explored as a means to reduce the harmful products of emission. A doping agent, Zr, is used to further improve ceria’s OSC and thermal stability. In this study, a high OSC endowed cerium-zirconium mixed-oxide (Ce_0.6Zr_0.4O₂) three-way catalyst (TWC) was synthesized using a surfactant assisted co-precipitation method, and a stable suspension of the mixed oxide in diesel was prepared. The characterization of the mixed oxide and nanofuel was done using different analytical techniques, and the formation of a solid solution of the mixed oxide was confirmed. A stable dispersion of mixed oxide nanoparticles in diesel was achieved with the use of a mixed alkyl chain length surfactant. The thermal conductivity of the nanofuel did not show any significant increase with an increase in TWC concentration, and the calorific value of the nanofuel decreased. It is concluded that the cerium-zirconium mixed-oxide has a much higher OSC than pure ceria and could be potentially be used for better combustion of fuel in engines.