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Energy conservation and efficiency have been the quest of engineers concerned with internal combustion engine. Theoretically, if the heat rejected could be reduced, then the thermal efficiency would be improved, at least up to the limit set by the second law of thermodynamics. Low Heat Rejection engines aim to do this by reducing the heat lost to the coolant. For current work a ceramic coated twin cylinder water-cooled diesel engine using blends of diesel and palm biodiesel as the fuel was evaluated for its performance and exhaust emissions. In recent years, Considerable efforts were made to develop and introduce alternative renewable fuel, to replace conventional petroleum-base fuels. Here, the diesel engine was insulated by Partially Stabilized Zirconia (PSZ) as ceramic material attaining an adiabatic condition. The cycle average gas temperature and metal surface temperature are higher in adiabatic engine.