Abstract Acetone–Butanol–Ethanol (ABE) is considered a “green” energy resource because it emits less carbon than many other fuels and is produced from biomass that is non-edible. To simulate the use of ABE fermentation products without dehydration and no addition of surfactants, a series of water-containing ABE-diesel blends were investigated. By integrating the diesel engine generator (DEG) and diesel engine dynamometer (DED) results, it was found that a diesel emulsion with 20vol.% ABE-solution and 0.5vol.% water (ABE20W0.5) enhanced the brake thermal efficiencies (BTE) by 3.26–8.56%. In addition, the emissions of particulate matter (PM), nitrogen oxides (NOx), polycyclic aromatic hydrocarbons (PAHs), and the toxicity equivalency of PAHs (BaPeq) were reduced by 5.82–61.6%, 3.69–16.4%, 0.699–31.1%, and 2.58–40.2%, respectively, when compared to regular diesel. These benefits resulted from micro-explosion mechanisms, which were caused by water-in-oil droplets, the greater ABE oxygen content, and the cooling effect that is caused by the high vaporization heat of water-containing ABE. Consequently, ABE20W0.5, which is produced by environmentally benign processes (without dehydration and no addition of surfactants), can be a good alternative to diesel because it can improve energy efficiency and reduce pollutant emissions.