About one-third of passenger vehicles available in the world market are diesel powered, which leads to greater emphasis on improving the performance of a diesel engine without changing the engine configuration. In this study, an attempt has been made to improve the combustion efficiency of nanofuel, CeO2 nanoparticles dispersed diesel. It was prepared using a tip sonicator with different concentration of ceria varied in the range of 0.02, 0.04, 0.06, 0.08, and 0.10 wt. % in diesel. Cerium concentration in diesel played an important role to control the concentration of toxic exhaust gases by influencing the complete combustion of fuel. The maximum reduction of emission gases and an increase of engine performance were observed at an optimum condition of 75 % of load and 0.06 wt. % of CeO2 in diesel, where brake thermal and mechanical efficiency were increased by 10 % and 7 %, respectively and the specific fuel consumption, NOx, and CO was found to be decreased by 10 %, 50 %, and 40 %, respectively. It is concluded that the use of nanofuel is a very efficient tool to protect our environment from the toxic gases emitted from the burning of fossil fuel.