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This paper presents the effects of using E85 (15% gasoline and 85% Ethanol) on the emissions and fuel consumption of a simulated hybrid electric vehicle (HEV) as compared to the usage of gasoline fuel. The benefits of successive engine modifications to obtain a optimized E85 engine (increased compression ratio) in an HEV are quantified. The results demonstrate that the largest reduction in pollutant emissions, of between 20% and 40%, depending on the specific pollutant, is obtained when the fuel is changed to E85. Increasing the compression ratio to take advantage of the high octane rating of E85 provides a slight improvement in fuel economy and emissions. Finally, the modification of the hybrid control strategy parameters only brings about a slight improvement in fuel economy and emissions. However, the parameter values are different for the FTP and US06 cycles. This latter finding demonstrates that the hybrid strategy must be adapted to match driving conditions.