Drilling fluid plays the same role in oil and gas well drilling as the blood in human body. A new type of oil-in-water (o/w) emulsion drilling fluid has been developed using diesel oil as dispersed phase, brine water as continuous phase, xanthan gum as viscosity modifier and clay as emulsion stabilizer and filtration controlling agent. Initially, standard recommended techniques were opted to detect the rheological properties of the emulsions. The fluids have also shown stable properties upto 70°C after aging for 24 h. As drilling fluids encounter a lot of variation in temperature and pressure as drilling depth increases, hence the stability of such fluids becomes an imperative parameter. Furthermore, emulsion itself is a heterogeneous fragile system so the stability was investigated using shear stress-shear rate rheology measurements. Emulsions have shown strong shear-thinning (pseudoplastic) behaviour which is considered an advantageous property for the drilling fluids. Experiments conducted to determine the dynamic rheology of the emulsions have shown the elastic behaviour towards emulsion breakdown processes. The fluids have also shown physical stability after 30 days at ambient conditions. Inter-facial variables such as zaeta potential, inter-racial tension (IFT) and contact angle measurements were conducted to examine their role in stability characterization.