The paper presents three-dimensional simulations of the in-cylinder processes in Direct Injection (DI) Diesel Engines. First, mathematical formulation is described with emphasis on physical models used for turbulence, interphase friction, evaporation and chemical reaction. Then, the results of 3D transient calculations of the two-phase fuel-air mixing and evaporation processes are presented. Four test cases have been considered to demonstrate the effects of changes in: a) fuel injector, b) computational grid, and c) initial air swirl velocity. Computed results show that each of these parameters has significant effect on the spread and evaporation of liquid fuel spray. The results of low and high air swirl cases are in qualitative agreement with published experimental observations. Finally, a test calculation of 3D, two-phase flow with evaporation and combustion is presented for demonstration purposes. The calculated temperature distributions and the cylinder pressure history show realistic trends. Improvements in physical models, particularly for evaporation and chemical reaction, and fine grid distributions are needed for further refinements.