Nanomaterials exhibit excellent properties, allowing them to act as fuel additives to improve diesel engine characteristics. This review highlights the unique potentials of nanomaterials and their activities in diesel engines to achieve lower harmful diesel emissions and better engine performance. The effects of nanomaterial-enriched fuels on engine characteristics and engine subsystems as well as associated opportunities, identified from laboratory test results obtained in recent years, are discussed. On the basis of two criteria, the best nanomaterial-base fuel pairs are identified from the set of the most frequently tested nanomaterials engaged as fuel additives in diesel engines. This is followed by a review of technical challenges that will need to be addressed and resolved to assure practical viability of nanomaterials acting as fuel additives. Finally, the environmental and human health risks, exposed by investigations in recent years, are reviewed. Wherever possible, potential solutions to outstanding problems are addressed and discussed briefly.