In view of the demands on energy saving and emission reduction for diesel engine, the application of microemulsified biodiesel is an important development trend. The stability and the physical and chemical characteristics of microemulsified biodiesel and the power, economy and emission performance of diesel engine fueled with it were reviewed based on domestic and abroad research. The performance differences of diesel engine fueled with microemulsified biodiesel and diesel were compared and analyzed. The study shows that the ignition delay period of microemulsified biodiesel is long so that the pressure rise rate, cylinder pressure peak and transient heat release increase. The effective thermal efficiency of microemulsified biodiesel is higher than that of diesel in most cases. Microemulsified biodiesel can reduce NOx and soot emissions significantly, reduce CO and HC emissions to a certain degree and reduce particulate and PM10 emissions slightly. As for the preparation of microemulsified biodiesel, the addition of expanded hydroxyl acid ester surfactant or metal catalyst can improve the stability and reduce pollutant emissions so the requirements of environmental protection are met. The study also points out that the further decrease of viscosity and the reduction of preparing cost will be the future research direction.