Compression ignition engines/diesel engines release greenhouse gases like particulate matter (PM), carbon monoxide (CO), nitrogen oxides (NOx), and, unburnt hydrocarbons which pose environmental and human health risks. Water‐in‐diesel emulsion (WiDE) has emerged as a cost‐effective alternative fuel for reducing the emission of these gases in diesel engines. This paper reviews the effectiveness of using emulsion fuel in engines to reduce harmful emissions as well as the challenges associated with WiDE, which include emulsion stability and corrosion. The review is based on available experimental results from various studies in the literature. While there are a few conflicting outcomes among researchers, the majority of results support the benefits of using WiDE in a compression engine as the PM and NOx emissions, significantly decreased. The decrease in NOx is a result of the flame reaching a lower peak temperature during combustion. The reduction in PM occurs as a result of the micro‐explosion process, which enhances combustion efficiency. Even though WiDE significantly reduces the environmental impact of diesel engines, this study also shows that WiDE faces stability problems and enhances the corrosion of materials. The development of a systematic methodology that can accurately measure emulsion stability, the in‐depth study of the impacts of surfactant dosage, water content and temperature on the corrosion behavior of metals in WiDE and also the development of anti‐corrosion intervention suggestions have been suggested based on the analysis of earlier research.