Hydrous ethanol is pointed out as one of the major alternative fuel for internal combustion engines, because it is environmental friendly (almost zero CO2 emission) and has excellent combustion properties. Recent studies have shown that ethanol-water fuel blends with higher water content (so-called wet ethanol) can reduce the overall costs of ethanol production. The use of wet ethanol results in lower nitrogen oxides emissions at the cost of reduced lower heating value per mass of fuel blend, which may result in less thermal efficiency. On the other hand, the increase in water content improves knock resistance. Thus, this study aims to investigate the effects of mechanical compression ratio variation on a spark ignition engine using ethanol-water fuel blends containing 4, 10, 20 and 30% v/v of water in ethanol. The research was carried out in a SI single cylinder engine, port fuel injected, 0.668 dm3 with the compression ratio modified by spacer rings. An AVL Indimicro and AVL PUMA were used to acquire pressure data and control the bench during the tests, respectively. Knock occurrence with compression ratios of 12.5, 13.5 and 14.5 was investigated by sweeping the ignition timing. The tests were performed under stoichiometric conditions, at 8 bar BMEP and 1800 rpm. With the increase in compression ratio, it was verified knock limited operation using lower water content fuel blends. Combustion duration, however, has shown low sensitivity to water content and compression ratio. In addition, it was shown that the conversion efficiency of ethanol-water fuel blends containing 20% v/v of water is higher when compared with the maximum conversion efficiency of the hydrous ethanol fuel (4% v/v of water in ethanol), a fact attributed to optimum combustion phasing (MBT operation) using ethanol-water fuel blends with higher water content. The highest indicating efficiency was 41% with 14.5 compression ratio using E80W20, an increase of 8% compared to the commercial ethanol, which showed maximum efficiency of only 38%, operating in MBT condition. Thus, the use of wet ethanol in spark ignition engines with high compression ratios is shown to be able to improve even further the energy balance of ethanol.