The use of cycle simulation computer programs for the study of both the steady and transient performance of turbocharged diesel engines has provided very useful information for their design and development. This paper describes the development of a dynamic simulation of a two-stroke turbocharged diesel engine.The mathematical model for the system has been developed using the filling and emptying concept. The simulation also includes the characteristics of the turbocharger compressor, turbine, scavenge blower and intercooler. A single zone combustion model has been used to calculate the rate of heat release in the engine cylinder from the fuel injection data.The steady state performance calculation shows a very good correlation with experimental results. Parametric studies were undertaken into the effect of friction and combustion during transient running; these show that the level of friction and the rate of combustion have a great effect on the response rate.