This work evaluated the effect of cooled exhaust gas recirculation (EGR) on fuel consumption and pollutant emissions from a diesel engine fueled with B8 (a blend of biodiesel and no. diesel 8:92% by volume), experimentally and numerically. Experiments were carried out on a diesel power generator with varying loads from 5 kW to 35 kW and 10% of cold EGR ratio. Exhaust emissions (e.g., total hydrocarbons (THCs), nitrogen oxides (NOx), carbon monoxide (CO), etc.) were measured and evaluated. The results showed mild EGR and low biodiesel content have minor impact of engine-specific fuel consumption, fuel conversion efficiency, and in-cylinder pressure. Meanwhile, the combination of EGR and biodiesel reduced THC and NOx up to 52% and 59%, which shows promising effect on overcoming the particulate matter–NOx tradeoff from diesel engine. A three-dimensional computational fluid dynamics engine model incorporated with detailed biodiesel combustion kinetics and NOx formation kinetics was validated against measured in-cylinder pressure, temperature, and engine-out nitric oxide emission from diesel engine. This valid model was then employed to investigate the in-cylinder temperature and equivalence ratio distribution that predominate NOx formation. The critical results showed that the reduction of NOx emission by EGR and biodiesel is obtained by a little reduction of the local in-cylinder temperature and, mainly, by creating comparatively rich combusting mixture, which makes the combustion path pass through lower NOx zone in the ϕ–T diagram.