The epidemic has driven a surge in demand for plastic-based personal protective equipment (PPE) kits in healthcare, creating environmental and health risks from discarded PPE waste. This study addresses these issues by converting PPE robes into energy through pyrolysis, producing plastic pyrolysis fuel (PPF) for use in diesel engines. The physicochemical properties of PPF were analyzed, and PPF-diesel blends (10%, 20%, and 30%) were tested alongside neat diesel fuel (NDF) in a single-cylinder diesel engine under varied brake-mean effective pressure (BMEP) conditions. Results show that adding PPF reduces in-cylinder pressure (ICP), heat release rate (HRR), and brake thermal efficiency (BTE). A 30% PPF blend increases brake-specific fuel consumption (BSFC), hydrocarbon (HC), carbon monoxide (CO), and smoke emissions by 13.8%, 23.3%, 10.5%, and 4.5%, respectively, while reducing NOx emissions by 5.5%. To enhance combustion performance and emissions, a water emulsion was added to the NDF + PPF mixture, incorporating 5% and 10% water with 30% PPF. This approach improved engine performance, increasing BTE by 10.8% and reducing HC, CO, NOx, and smoke emissions by 22.3%, 15.9%, 10.3%, and 6.2%, respectively. Cost-benefit analysis shows that water-emulsified PPF-diesel fuel achieves comparable engine performance to NDF while reducing operating costs by 19.1%.