This work aims at investigating the effect of oxygen enriched combustion with water injection at the intake on engine’s performance, emission and combustion characteristics of a MO (mahua oil) fueled diesel engine. Initially, experiments were conducted with ND (neat diesel) and neat MO as fuels under variable power output conditions. Subsequently experiments were followed with MO as fuel with different oxygen concentrations such as 21.8%, 22.4%, 23.8% and 24.7% by volume. The optimal oxygen concentration was found based on the engine’s BTE (brake thermal efficiency) as 23.8%. At the optimal oxygen concentration water injection was carried out at 1%, 2%, 3% and 4% by volume. The optimal amount of water injection was obtained as 2%. A comparative study was made for the optimal oxygen concentration and optimal water injection conditions. The maximum BTE was noted as 25.4% and 32.8% with neat MO and ND respectively at the maximum engine power output. However, oxygen enrichment increased the BTE with all concentrations and reached the maximum value of 30.6% at 23.8% oxygen enrichment at the maximum power output of 3.7 kW. The smoke, HC (hydrocarbon) and CO (carbon monoxide) emissions were significantly reduced with oxygen enrichment. At peak power output the smoke value was noted as 48% with 23.8% oxygen enrichment whereas it was 67% and 40% with neat MO and ND. However, oxygen enrichment increased the NO (nitric oxide) emissions at all concentrations. Injection of water along with intake air reduced the NO emissions considerably. Shorter ignition delay and combustion duration were observed with oxygen enrichment as compared to ambient oxygen operation. Water injection increased the ignition delay at all power outputs. The peak pressure and heat release rate were improved with oxygen enrichment as compared to neat MO operation. It was concluded that MO could be effective used as fuel in compression ignition engines by combusting it under oxygen enriched condition. The optimal oxygen concentration of 23.8% could be recommended for the highest BTE. However, the penalty in oxygen enrichment is the NO emission. Injection of water at the intake manifold could solve the problem of higher NO emissions. The optimal amount of water that could be injected without affecting the engines power and BTE could be recommended as 2% by volume.