Biodiesel is one of the most promising renewable, alternative and environmentally friendly biofuels that can be used in diesel engine without any need for any modification in the engine. However, researchers have reported that the engines running with biodiesel emit NOx in higher concentrations. To address this problem, in the present study an experimental investigation has been carried out on the combustion, performance and emission characteristics of a compression ignition (CI) engine running with biodiesel under steady state conditions with a novel NOx reducing mechanism involving a water injections system. The experimental work has been conducted on a four-cylinder, four-stroke, direct injection (DI) as well as turbocharged diesel engine. In this investigation, biodiesel (produced from the rapeseed oil by transesterification process) has been used. During the experiments the in-cylinder pressure, specific fuel consumption, water injection flow rate, fuel flow rate and exhaust emission (NOx, CO, CO2 and THC) were measured. The experimental results clearly indicate that water injection at a rate of 3 kg/h results in the reduction of NOx emission by about 50% without causing any significant change in the specific fuel consumption. Furthermore, the water injection in the intake manifold has little effect on the in-cylinder pressure and heat release rate of the CI engine under different operating conditions.