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Significant improvements in exhaust emissions and engine performance in an ordinary DI diesel engine were realized with highly oxygenated fuels. The smoke emissions decreased sharply and linearly with increases in oxygen content and entirely disappeared at an oxygen content of 38 wt-% even at stoichiometric conditions. The NOx, THC, and CO were almost all removed with a three-way catalyst under stoichiometric diesel combustion at both the higher and lower BMEP with the combination of EGR and a three-way catalyst. The engine output for the highly oxygenated fuels was significantly higher than that with the conventional diesel fuel due to the higher air utilization.