Cummins Engine Company, Inc. and the U.S. Army have been jointly developing an adiabatic turbocompound engine during the last nine years. Although progress in the early years was slow, recent developments in the field of advanced ceramics have made it possible to make steady progress. It is now possible to reconsider the temperature limitation imposed on current heat engines and its subsequent influence on higher engine efficiency when using an exhaust energy utilization system.This paper presents an adiabatic turbocompound diesel engine concept in which high performance ceramics are used in its design. The adiabatic turbocompound engine will enable higher operating temperatures, reduced heat loss, and higher exhaust energy recovery, resulting in higher thermal engine efficiency. This paper indicates that the careful selection of ceramics in engine design is essential. Adiabatic engine material requirements are defined and the possible ceramic materials which will satisfy these requirements are identified. Examples in design considerations of engine components are illustrated. In addition to these important points, the use of ceramic coatings is described in the design of engine components. The first generation adiabatic engine with ceramic coatings is described. The advanced adiabatic engine with minimum friction features utilizing ceramics is also presented. The advanced ceramic turbocharger turbine rotor as well as the oilless ceramic bearing design is described. Finally, the current status of the advanced adiabatic engine program culminating in the AA750 V-8 adiabatic engine is presented.