An engine oil filter assembly and method for removing solid and liquid contaminants from engine oil. After solid contaminants are removed by passing the oil under engine pressure upwardly through a fibrous filter element within a lower portion of a canister, the oil is then forced through a separator after which the filtered oil under pressure decompresses. A lid having a downwardly sloping central portion is closely spaced above a similar sloping central portion of the separator to define a heating channel therebetween. A heating element in fluid isolation from the heating channel radiates heat through the central lid portion to vaporize liquid contaminants still in the oil, the vaporized contaminants discharging through a vapor vent in the lid, the decontaminated oil passing by gravity through the heating channel into a drain insert and back into the engine via an oil return port.