The lean-burn stratified-charge DISI engine has a strong potential for increased thermal efficiency compared to the traditional throttled SI engine. This experimental study of a spray-guided stratified-charge combustion system compares the engine response to injection-timing retard for gasoline and E85. Focus is on engine-out NO and soot, and combustion stability. The results show that for either fuel, injection-timing retard lowers the engine-out NO emissions. This is partly attributed to a combination of lower peak-combustion temperatures and shorter residence time at high temperatures, largely caused by a more retarded combustion phasing.However, for the current conditions using a single-injection strategy, the potential of NO reduction with gasoline is limited by both elevated soot emissions and the occurrence of misfire cycles. In strong contrast, when E85 fuel is used, the combustion system responds very well to injection-timing retard. By using near-TDC injection of E85 ultra-low emissions of NO can be achieved. Despite the low NO emissions, both combustion efficiency and stability remain relatively high, but a mitigation of partial-burn cycles is desirable. One striking aspect of engine operation with near-TDC injection of E85 is the requirement and ability to ignite the head of one of the penetrating fuel jets. This early ignition results in a relatively short time delay between the end of the injection event and CA50. The closely-coupled injection and ignition lead to a combustion event that visually appears to have a finer structure, possibly indicative of a higher turbulence level during combustion. Furthermore, for gasoline it was not possible to operate with near-TDC injection to achieve very low NO emissions since gasoline required spark ignition at the end of the injection event. Modeling of fuel vaporization and mixing suggests that the gas-phase equivalence ratio is too high for gasoline to allow stable ignition of the head of one of the fuel jets. For E85, the model shows that the high heat of vaporization prevents the formation of ultra-rich gas-phase mixtures, which together with the high oxygen content of the fuel might explain the ability to ignite the E85 fuel jet during the injection event. Flame modeling in CHEMKIN shows that the strong vaporization cooling of ethanol suppresses the flame speed in rich areas; together with the high oxygen content of the fuel, suppressed flame activity in rich zones could be an important contributor to the low soot emissions that are realized despite highly stratified and mixing-controlled combustion for near-TDC fuel injection.Direct comparison of stratified combustion with nearly identical heat-release rates for gasoline and E85 reveals 43% lower exhaust NO emissions for E85. This reduction of NO is attributed to two factors: 1) A reduction of the combustion-product temperatures due to strong vaporization cooling of ethanol in E85. 2) Increased post-combustion mixing rates caused by a more closely coupled injection and combustion event, and 52% more fuel injected due to the lower heating value of E85.