To reduce the amount of petroleum-derived fuel used in vehicles and vessels powered by internal combustion engines (ICEs), the addition of bioderived fuel extenders is a common practice. Ethanol is perhaps the most common bioderived fuel used for blending, and butanol is being evaluated as a promising alternative. The present study determined the fuel dilution rate of three lubricating oils (pure gasoline (E0), gasoline–10% ethanol blend (E10), and gasoline–16% isobutanol blend (i-B16)) in a marine engine operating in on-water conditions with a start-and-stop cycle protocol. The level of fuel dilution increased with the number of cycles for all three fuels. The most dilution was observed with i-B16 fuel, and the least with E10 fuel. In all cases, fuel dilution substantially reduced the oil viscosity. The impacts of fuel dilution and the consequent viscosity reduction on the lubricating capability of the engine oil in terms of friction, wear, and scuffing prevention were evaluated by four different tests protocols. Although the fuel dilution of the engine oil had minimal effect on friction, because the test conditions were under the boundary lubrication regime, significant effects were observed on wear in many cases. Fuel dilution was also observed to reduce the load-carrying capacity of the engine oils in terms of scuffing load reduction.