Recycling used plastic can help reduce the amount of plastic waste generated. Existing methods, namely the process of pyrolysis, are chemical heating processes that decompose plastics in the absence of oxygen. This decomposes the plastics in a controlled environment in order to produce fuel from waste. The present study consequently investigated the physical and chemical properties of pyrolysis oil derived from plastic bottle caps (WPBCO) and the effects on the engine performance and emission characteristics of a diesel engine operating on WPBCO. The experiments were conducted with a single-cylinder diesel engine operating at a constant 1500 rpm under various engine loading conditions. The experimental results of the chemical properties of test fuels indicated that WPBCO and diesel fuels have similar functional groups and chemical components. In comparison, WPBCO has a lower kinematic viscosity, density, specific gravity, flash point, fire point, cetane index, and distillation behavior than diesel fuel. However, WPBCO has a high gross calorific value, which makes it a suitable replacement for fossil fuel. In comparison to diesel fuel, the use of WPBCO in diesel engines results in increased brake-specific fuel consumption (BSFC) and brake thermal efficiency (BTE) under all load conditions. The combustion characteristics of the engine indicate that the use of WPBCO resulted in decreased in-cylinder pressure (ICP), rate of heat release (RoHR), and combustion stability compared to diesel fuel. In addition, the combustion of WPBCO advances the start of combustion more strongly than diesel fuel. The use of WPBCO increased emissions of NOX, CO, HC, and smoke. In addition, the particulate matter (PM) analysis showed that the combustion of WPBCO generated a higher PM concentration than diesel fuel. When WPBCO was combusted, the maximum rate of soot oxidation required a lower temperature, meaning that oxidizing the soot took less energy and that it was easier to break down the soot.