Dual fuel combustion with premixed ethanol as the main fuel and direct injection of diesel fuel as an ignition source poses problems including large unburned emissions and excessively rapid combustion. In this report the influence of compression ratios, injection timings of diesel fuel, and intake oxygen concentrations was systematically investigated in a modern diesel engine.The combustion process was classified into three stages: the first rapid combustion of diesel fuel and the ethanol mixture entrained into the diesel fuel spray; the second mild combustion with flame propagation of the ethanol mixture; and the third rapid combustion with auto-ignition of the unburned ethanol mixture without knocking. The third stage combustion occurs occasionally at several operating conditions and has been termed as PREMIER (premixed mixture ignition in the end-gas region) combustion. With PREMIER combustion, reductions in the unburned emissions as well as improvements in the combustion stability and the thermal efficiency are possible. With lower intake oxygen concentrations by cooled EGR the maximum rate of pressure rise is reduced with suppression of the first rapid combustion and the third PREMIER combustion. At the compression ratio of 18.5, the PREMIER combustion becomes excessively rapid with a higher IMEP, resulting in a decrease in the maximum IMEP. Reducing the compression ratio from 18.5 to 14.5 the maximum IMEP increases due to suppression of the excessively rapid combustion while at the low IMEP conditions the unburned emissions increase. Temperatures of the unburned mixture at the onset timings of the PREMIER combustion are distributed between 800 K and 920 K.