A dielectric liquid having entrained bubbles of gas or vapor is subjected to an electric field applied between spaced electrodes (112, 116) which generates microdischarges (and thus plasma) within the bubbles, allowing modification of the properties of the dielectric liquid. The invention is particularly useful for treating hydrocarbon liquids such as gasolines and other liquid hydrocarbon fuels, which have extremely low dielectric constants. Generating microdischarges within bubbles in such fuels can create compounds useful for higher combustion efficiency and/or lower emissions in internal combustion engines. The invention may be directly implemented in an engine's fuel line upstream from the combustion chamber (e.g., immediately prior to a fuel injector), thereby allowing the invention to be usefully implemented for fuel treatment prior to combustion.