The uses of lean mixtures and exhaust gas recirculation (EGR) are known to increase thermal efficiency and reduce emissions. Often the two approaches are used simultaneously. This investigation is aimed at establishing a better understanding of the fundamental thermodynamic aspects of these approaches.A 5.7 liter, spark-ignition, automotive engine was selected for this study. Using a thermodynamic engine cycle simulation, the thermal efficiencies and other engine parameters were determined as functions of equivalence ratio and EGR levels. The results also are shown as functions of parameters which reflect the temperature decrease associated with decreasing equivalence ratio and increasing EGR levels. The results show that the two approaches provide lower temperatures which result in lower heat losses, reduced pumping losses, higher ratio of specific heats (“gamma”), and lower nitric oxide emissions. The use of lower equivalence ratios provides a higher gamma due not only to the lower temperatures, but also due to the composition change. For the use of EGR, however, the combustion product composition remains the same, and therefore, gamma for the products only changes due to the change of temperature. Finally, the thermal efficiency increases due to lean operation and increasing EGR correlate well with the percentage increase of gamma.