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This paper studies the effect of cooled EGR on fuel consumption and anti-knock performance of a boosted port fuel injection (PFI) SI engine. Experimental results show that the cooled EGR increases the thermal efficiency by 2%∼18% depending on the operation conditions. Compared to low load operations, more improvements of the thermal efficiency are obtained at higher loads, primarily owing to the enhanced anti-knock performance, advanced combustion phasing, elimination of fuel-rich operations as well as reduced heat transfer loss with cooled EGR. The anti-knock performance of cooled EGR provides further potential to improve the thermal efficiency by increasing the compression ratio. To this end, a 1-D thermodynamic model of the engine is built and calibrated using the GT-Power code. A knock prediction correlation considering EGR is developed and validated with the experimental data.