Bioethanol is an established biofuel used today in sparked-ignited (SI) engines, however with limited fuel efficiency and stringent requirements on the ethanol purity (water content). In this paper, we will present the operation of a compression-ignition (CI) engine fuelled with upgraded hydrous ethanol. A specific fuel upgrade operation (excluding additives) converts a fraction of the hydrous ethanol to diethyl-ether, hence increases the cetane number up to adequate levels. The resulting upgraded fuel is tested in a commercial diesel engine (light-duty common-rail EURO IV model). In particular, the compression ratio is kept unchanged and only the injection timing is modified to ensure compression-ignition operation, securing the peak pressure at 8-12 degrees after top dead center. We present the performance and emission characteristic of the upgraded ethanol fuel when operating at two engine settings and discuss the engine's transient behavior powering a New European driving cycle (NEDC). Two important aspects are detailed, namely (i) the fuel efficiency obtained with the upgraded ethanol fuel is comparable to the fuel efficiency obtained with a reference fossil diesel fuel; (ii) the particle emissions are significantly lower (in mass and particle number) when operating with the upgraded ethanol fuel. Following point (ii), results are presented using exhaust gas recirculation (EGR) to lower NOx emission while keeping hydrocarbons and CO emissions reasonable. Finally, conclusions are drawn on the potential and properties of the upgraded hydrous ethanol as a clean fuel.