The present study is carried out to formulate stable water-in-soybean biodiesel emulsion fuel and investigate its emission characteristics in a single cylinder diesel engine. Four types of emulsion fuels, which consist of a different percentage of water (5%, 10%, 15%, and 20%) in soybean biodiesel, were prepared with suitable surfactant and properties were measured. The physicochemical properties are on par with EN 14214 standards. The experimental result of test fuels indicates that the soybean biodiesel promotes a lower level of hydrocarbon (HC), carbon monoxide (CO) and smoke emissions compared to base diesel except for nitrogen oxide (NOx) emission. Increase in water concentration with soybean biodiesel significantly reduces the NOx emission and smoke opacity. The HC and CO emissions are further reduced with emulsified biodiesel up to 10% water concentration and beyond that limit, marginal increases are recorded. Overall, it is observed that inclusion of water with soybean biodiesel reduces the HC, CO, NOx and smoke emissions when compared to base diesel and soybean biodiesel, and 10% water in soybean biodiesel is an appropriate solution to reduce the overall emissions in the soybean-fuelled diesel engine.