To use dimethyl ether as fuel for compression ignition engine to partially replace fossil oil, this study developed a city bus operating on DME blended with diesel oil. Considering fuel lubricity, viscosity, and calorific value, the optimized mixing ratio for blend fuel was chosen as 20 wt% DME in diesel oil (D20). Vapor pressure experiments carried out using a highly accurate thermophysical property measurement system showed that the backpressure for blended fuels must not be lower than 0.6Mpa to avoid vapor block in the engine fuel supply system. Moreover, because DME attacks conventional polymer sealants in the fuel system, new sealants made of nitrile rubber (NBR) were used to replace those original one. Experiments demonstrated that these were resistant to swelling by DME. For engine performance, it was found that fueled with D20, the rated engine power output can be comparable to that of diesel engine after increasing the supplied fuel amount per cycle, while the overall fuel economy was improved simultaneously. Moreover, for load characteristics at 1800r/min, over 70% reduction in smoke and 20% reduction in nitrogen oxides (NOx) emission were achieved, indicating that using DME blends as fuel can significantly improve the engine emissions.