The purpose of this paper is to study the mechanism of sludge formation by use of a laboratory scale sludge simulator and to propose a new method to evaluate engine oil dispersancy. The simulator consists of a synthetic blow-by gas generator, a reaction vessel and a waste gas disposal device, and this synthetic blow-by gas is bubbled into a sample oil. After a certain hours of bubbling, n-hexane insolubles, defined as “sludge” in this paper, are separated from the oil sample by centrifuge and/or filtration. The following results were obtained. (1) IR spectra of the sludge formed by the simulator is similar to that of the sludge formed in actual engines. (2) The essential components for the sludge formation are thermal decomposition products of fuel, nitrogen monoxide and air. (3) Olefin rich gasoline gives rise to much sludge formation. Adaptability of the simulator for the evaluation of engine oil dispersancy was examined.