Learn Spanish (Latin America): Es aquí donde diluyo el extracto.

In English, we often say 'This is where...', but translating it literally to Esto es donde sounds unnatural in Spanish. Esto (this) is a neutral pronoun for a thing or an idea, not a location. To emphasize a location, Spanish uses ser + [location] + donde. So, Es aquí donde... (literally 'It is here where...') is the most natural way to express this.

Why does the verb diluyo have a 'y' in it if the infinitive is diluir?

For Spanish verbs ending in -uir (like diluir, construir, or huir), a y is added in the present tense before endings that don't start with an 'i' (which includes all forms except nosotros). This happens to avoid an awkward vowel combination; if we just dropped the -ir and added -o, we'd get diluo. The y keeps the pronunciation smooth: yo diluyo.

Is it possible to use en donde instead of just donde in this sentence?

Yes, you can! When referring to a stationary location where an action takes place (rather than a destination you are moving toward), donde and en donde are completely interchangeable. Saying Es aquí en donde diluyo el extracto is equally natural and correct.