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Difference of engine combustion characteristics, species and amount of exhaust gas and PM (particulate matter consisted of SOF and Soot and Ash), and especially PM oxidation characteristics were studied when diesel fuel or bio-fuel, here PME (palm oil methyl ester) as an example, was used as a fuel. The fueling rate was adjusted to obtain the same torque for both fuels and engine was operated under several range of EGR (Exhaust Gas Recirculation) ratio. Under such conditions, PME showed shorter ignition delay time and lower R.H.R (rate of heat release) under 0-40% EGR ratio. With respect to engine exhaust gas species, CO, NO, THC and HCHO, CH3CHO concentration was almost the same when the EGR ratio is higher than 35% (Intake-Air/Fuel: A/F=20). However, PME also showed lower exhaust gas emission when the EGR ratio is higher than 30%.