This paper describes the progress on the Cummins-TARADCOM adiabatic turbocompound diesel engine development program. An adiabatic diesel engine system adaptable to the use of high performance ceramics which hopefully will enable higher operating temperatures, reduced heat loss, and turbo-charged exhaust energy recovery is presented. The engine operating environments as well as the thermal and mechanical loadings of the critical engine components are covered.Design criteria are presented and techniques leading to its fulfillment are shown. The present shortcomings of the high performance ceramic design in terms of meeting reliability and insulation targets are discussed, and the needs for composite designs are shown. A ceramic design methodology for an insulated engine component is described and some of the test results are shown. Other possible future improvements such as the minimum friction-unlubricated engine through the use of ceramics are also described.