Secondary atomization in emulsified fuel is widely accepted to be a cause of decreased NOx and soot emissions. Although secondary atomization, such as puffing and micro-explosion, is known to occur in the heating process, little detailed information is available on the secondary atomization behavior of emulsified fuel droplets. In this study, numerical simulations of heat transfer and fluid flow in an emulsified fuel droplet were carried out, taking into consideration multi-phase flow. The optimal condition for preparation of emulsified fuel was investigated using the numerical results and the bubble nucleation theory. The numerical results showed the temperature distribution and high volume fraction of dispersed water droplets in the droplet. The calculated temperature histories of the droplet were in good agreement with experimental results. It is suggested that 20 vol% emulsified fuel is the optimal preparation condition for micro-explosion.