Lemon peel oil (LPO) is considered to be a viable alternative fuel for diesel engine applications due to its wider availability, renewable nature, easy extraction process, almost equivalent calorific value as neat diesel, and low viscosity. The present work aims to investigate the effect of novel emulsified LPO in a diesel engine in order to reduce the NOx emission without compromising the engine performance. A new ionic surfactant is introduced in the present study, namely methyl-dihydroxy propyl imidazolium chloride due to its higher hydrophilic-lipophilic balance value which helps to prepare stable water in oil emulsion. Also, Span 80 has been selected as another suitable surfactant for water in oil emulsion. Four emulsified fuel samples have been prepared using LPO, water, and different concentrations of surfactants. All the fuel samples are tested for their stability through gravitational technique for 7 days. Among the emulsified samples, 92% LPO + 5% water + 2% Span 80 + 1% methyl-dihydroxy propyl imidazolium chloride by volume (LPOE2) and 93.5% LPO + 5% water + 1.5% surfactant Span 80 by volume (LPOE4) have showed better stability when compared to other emulsion fuel samples. It is also revealed that the stability of LPO emulsion is improved by the addition of two emulsions. The experimental results showed that the brake thermal efficiency of LPO emulsion is reduced to 29.87 from 34.58% of pure LPO at full load condition. Oxides of nitrogen emission and smoke emission are reduced by 21-32 and 6-15% for the LPO emulsion samples compared to pure LPO. Moreover, the diesel engine operation with emulsified form of LPO increases the HC emission about 0.1 g/kWh for LPOE4 and 0.15 g/kWh for LPOE2 fuels from 0.053 g/kW for pure LPO at maximum power output condition. The reformulation of LPO into emulsified form increases the CO emission by 25-53% compared to pure LPO. Moreover, the reformulation of LPO into emulsions has resulted in lower cylinder pressure and heat release rate compared to pure LPO and diesel fuels.