In this research the benefits of applying oxy-combustion in a diesel engine to reduce NOx and particulate emissions were evaluated. The addition of oxygen to the intake in conjunction with exhaust gas recirculation (EGR) was shown to reduce NOx without an increase in particulate. Indicated specific NOx and particulate emissions for oxygen-enhanced EGR (O-EGR) and EGR without oxygen addition (normal or N-EGR) were compared at three engine loads. NOx emissions correlated with flame temperature for both N-EGR and O-EGR but were slightly lower at a given flame temperature for O-EGR. Flame temperature reduction for N-EGR was primarily through dilution of the available oxygen while for O-EGR both the increase of specific heat and dilution were important in reducing flame temperature. Oxygen addition allowed the use of high levels of EGR without reducing the oxygen concentration, thereby substituting CO2 and H2O for a substantial portion of the N2 as diluent. Increased dissociation due to higher levels of CO2 was believed to provide a minor enhancement to flame temperature reduction for O-EGR. An analysis of NOx formation based on the Zeldovich mechanism suggested that increased NOx reduction for O-EGR at equivalent flame temperatures is due to lower nitrogen concentrations. Indicated specific particulate increased with increasing EGR for N-EGR and correlated with flame temperature but remained constant for O-EGR and did not correlate with flame temperature. This indicated that O-EGR has a chemical effect on particulate formation and/or oxidation. The literature suggests CO2 suppresses soot formation by decreasing the radical H concentration which reduces the formation of soot precursors and soot growth.