The accumulation of plastic waste poses a major environmental challenge, while the conversion of waste plastics into oil via pyrolysis holds promise as an alternative energy solution. Despite numerous investigations into this area, none have focused on optimizing pyrolysis process parameters for higher oil yield and enhancing the overall performance of plastic oil through suitable fuel modification. The present study aims to optimize the pyrolysis process parameters, including heating rate (HR), process temperature (PT), and reaction time (RT), to achieve a higher yield of waste plastic oil (WPO) and enhance the overall performance by blending optimal quantities of water. Fuel characterization and properties measurement were conducted using Fourier Transform Infrared and ASTM methods. WPO was blended with conventional diesel fuel (CDF) and different volume concentrations of water (5, 10, and 15). The performance metrices were assessed under various engine conditions. The study findings indicate that the optimum condition of process parameters is an HR of 17.3 °C/min, PT of 403 °C, and RT of 96.30 min, and the fuel quality confirms its suitability as an alternative fuel source. The performance metrics revealed that WPO has a 5.4 lower brake-thermal efficiency than CDF, and the inclusion of 10 water in WPO (WPO10W) enhances the efficiency by 11.5. The in-cylinder pressure and net-heat release rate of WPO are 1.3 and 12.9 lower than CDF, respectively, and WPO10W emulsion promotes efficient combustion. WPO10W emulsion fuel reduces oxides of nitrogen, hydrocarbon, and carbon monoxide emissions by 21.2, 9.8, and 22.2, respectively, compared to WPO. © 2024 The Authors