Diesel engines are widely used for their low fuel consumption and better efficiency. An investigation was carried out with a single cylinder diesel engine to establish the effects of alumina nanoparticle incorporation into the Canola biodiesel (BD) emulsion fuel. The Canola BD was formed from the Canola oil by transesterification process, and later the Canola BD emulsion fuel was prepared in the fraction of 83% of Canola BD, 15% of water, and 2% of surfactants (by volume). The alumina nanoparticles were blended with the Canola BD emulsion fuel at different ratios systematically. The entire study was conducted in the diesel engine using the three fuels, namely, neat BD, Canola BD emulsion fuel, and alumina nanoparticle blended Canola emulsion fuels consecutively. The experimental results revealed a considerable improvement in the brake thermal efficiency (BTE) for the alumina blended Canola emulsion fuels compared with that of neat Canola BD and Canola BD emulsion fuel. At the full load, the BTE observed for the Canola BD fuel was 30.7%, whereas it was 27.81% and 31.6% for the Canola BD emulsion fuel and alumina nanoparticle blended emulsion fuel, respectively. The use of a nanoparticle blended BD fuel reduced the hydrocarbon (HC) and carbon monoxide (CO) emissions but increased oxides of nitrogen (NOx) emissions due to the increased oxygen content in the BD fuel but it was reduced in nanoparticle blended fuel. The smoke emission was reduced by 50% with the use of the nanoparticle blended emulsion fuel.