In this study, the effect of EGR and fuel injection pressure on the characteristics of combustion and emission performance of the common-rail diesel engine is investigated using DME fuel as a smoke-free alternative fuel. Because the heating value and density of DME fuel are lower than those of diesel fuel, the injection duration of the DME engine is relatively longer than the injection duration of the diesel engine with the same injection pressure. However, the higher injection pressure can shorten the injection duration for the DME engine. Although the smoke level of the DME engine is much lower than that of the diesel engine, the NOx is at a level similar to that of the diesel engine. As a proposed solution for this, the EGR technique is empirically applied to the DME engine. In the experiments, the injection pressure was changed from 200bar to 400bar, and the EGR rate was limited under 40%. With the same injection timing and fuel amount, the experiment results indicated that the increase of injection pressure led to the increase of IMEP while decreasing HC and CO emissions. However, the NOx emission tends to increase as the injection pressure becomes higher. On the other hand, as the EGR rate was increased, NOx emission and A/F were reduced while the HC and CO emissions were increased. Because HC and CO emissions have the critical A/F point where the emissions of HC and CO are rapidly increased, it is proposed that the EGR rate must be limited under the critical EGR rate.