The performance of a conventional, carbureted, two-stroke spark-ignition (SI) engine can be improved by providing moderate thermal insulation in the combustion chamber. This will help to improve the vaporization characteristics in particular at part load and medium loads with gasoline fuel and high-latent-heat fuels such as methanol. In the present investigation, the combustion chamber surface was coated with a 0.5-mm thickness of partially stabilized zirconia, and experiments were carried out in a single-cylinder, two-stroke SI engine with gasoline and methanol as fuels. Test results indicate that with gasoline as a fuel, the thin ceramic-coated combustion chamber improves the part load to medium load operation considerably, but it affects the performance at higher speeds and at higher loads to the extent of knock and loss of brake power by about 18%. However, with methanol as a fuel, the performance is better under most of the operating range and free from knock. Carbon monoxide (CO) emissions are significantly reduced, by about 3 to 4% volume, for both gasoline and methanol fuels due to relatively lean operation and more complete combustion. NOx emissions were not measured. The results show that moderate thermal insulation of the two-stroke SI engine's combustion chamber is better suited to methanol fuel with respect to thermal efficiency, CO emissions, and knock-free operation compared to gasoline fuel.