More requirements for diesel fuel and a huge rise in air pollution, owing to the surplus usage of diesel fuel, give us a prospect to discover environmentally friendly and clean fuels for the existing unmodified diesel engines. The present work is aimed to analyze the combustion, performance, and emission characteristics of a neat palm oil biodiesel (POBD)-fueled diesel engine with silver oxide (Ag2O) as a additive in various mass fractions (5 and 10 ppm), and the results are compared to conventional diesel. Experiments were conducted in a natural aspirated, two-cylinder diesel engine at a constant speed and compression ratio of 2400 rpm and 17:1, respectively. Ag2O was added with neat POBD using an ultrasonicator. The experimental investigation on the diesel engine reveals that the addition of Ag2O nanoparticles to palm oil mill effluent (POME) resulted in enhancement in ignition characteristics because of the enhanced surface area/volume ratio. In addition, the addition of Ag2O nanoparticles to POME resulted in enhancement in brake thermal efficiency with a reduction in brake specific fuel consumption. The experimental results also show that the Ag2O nanoparticles promote an improved level of hydrocarbon, carbon monoxide, smoke, and nitrogen (NOx) emissions.