The results of experiments and computations over a new two-cylinder regenerative cycle engine are reported. Heat regeneration by means of a reticulated ceramic matrix placed inside the combustion chamber was found to be very efficient, with transient, open throttle surface temperatures in excess of 1150°C. In most cases, the matrix caused a premature ignition of the premixed fuel and air. A time-dependent thermodynamic computation of the cycle shows that the cycle cannot produce shaft power as long as premature ignition is present. Different alternatives for engine design and operation are discussed, with basis on the computations. The highest efficiencies can be achieved by cycles where the compression phase is performed by an external compressor. The predicted performance of regenerative engines with direct fuel injection is similar to that of engines burning a premixed fuel-air mixture.