Strong alkaline-catalyst transesterification with short-chain alcohol is generally used for biodiesel production due to its dominant advantages of shorter reaction time and higher conversion rate over other reactions. The existence of excess water content in the feedstock oil might retard the transesterification rate and in turn deteriorate the fuel characteristics of the fatty acid methyl esters. Hence, optimum water content in the raw oil, aimed towards both lower production cost and superior fuel properties, becomes significant for biodiesel research and industrial practices. Previous studies only concerned the influences of water contents on the yield or conversion rate of fatty acid methyl esters through transesterification of triglycerides. The effects of added water in the reactant mixture on burning characteristics of fatty acid methyl esters are thus first investigated in this study. Raw palm oil was added with preset water content before being transesterified. The experimental results show that the biodiesel produced from the raw palm oil containing a 0.05 wt.% added water content had the highest content of saturated fatty acids and total fatty acid methyl esters (FAME), while that containing 0.11 wt.% water content had the lowest content of total FAME and fatty acids of longer carbon chains than C16 among the biodiesel products. Regarding burning characteristics, palm-oil biodiesel made from raw oil with a 0.05 wt.% added water content among those biodiesels was found to have the highest distillation temperatures, flash point, and ignition point, which implies higher safety extents during handling and storage of the fuel. The added water content 0.05 wt.% in raw oil was considered the optimum to produce palm-oil biodiesel with superior fuel structure of fatty acids and burning characteristics. Higher or lower water content than 0.05 wt.% would cause slower nucleophilic substitution reaction and thus a lower conversion rate from raw oil and deteriorated burning characteristics in turn.