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The paper presents analysis of performance and emission characteristics of a common rail diesel engine operating with RME, with and without EGR. In both cases, the RME fuel was pre-heated in a heat exchanger to control its temperature before being pumped to the common rail. The studied parameters include the in-cylinder pressure history, rate of heat release, mass fraction burned, and exhaust emissions. The results show that when the fuel temperature increases and the engine is operated without EGR, the brake specific fuel consumption (bsfc) decreases, engine efficiency increases and NOx emission slightly decreases. However, when EGR is used while fuel temperature is increased, the bsfc and engine efficiency is independent of fuel temperature while NOx slightly increases.