The maximum thermal efficiency of gasoline engine has been improving and recently the maximum of 40% has been achieved. In this study, the potential of further improvement on engine thermal efficiency over 40% was investigated. The effects of engine parameters on the engine thermal efficiency were evaluated while the optimization of parameters was implemented. Parameters tested in this study were compression ratio, tumble ratio, twin spark configuration, EGR rate, In/Ex cam shaft duration and component friction. Effects of each parameter on fuel consumption reduction were discussed with experimental results. For the engine optimization, compression ratio was found to be 14, at which the best BSFC without knock and combustion phasing retardation near sweet spot area was showed. Highly diluted combustion was applied with high EGR rate up to 35% for the knock mitigation. Twin spark plugs and high tumble flow were applied in order to enhance faster and stable combustion under highly diluted operations. LIVC strategy was selected for cam profiles in order to mitigate knocks and reduce the exhaust pulse interaction under high load. As a result, brake thermal efficiency of 42.2% under stoichiometric operation was achieved in the newly developed 2.0 L I4 NA proto-type gasoline engine.