The current quest for clean and renewable fuels has prompted the appearance of several bio-mass fuel alternatives. Ethanol is a renewable biofuel obtained from different agricultural crops. The main production process to obtain anhydrous ethanol consists of crop production, mashing and cooking, fermentation, distillation and chemical dehydration. Some attractive characteristics of ethanol as a clean energy source is the CO2 absorption through photosynthesis during the crop plantation phase and positive ethanol life cycle energy balance. Even though, ethanol production cost is still relatively high when compared to fossil fuels. Knowing that a large energy amount is spent in the distillation phase, the use of hydrous ethanol as fuel, with high water content, can be economically attractive. This paper compares the use of high water-in-ethanol volumetric content fuel, varying from 5% to 40%, in a naturally aspirated 0.668-L single-cylinder port-fuel injected spark-ignited engine. Computer simulation was used coupled with experimental tests to assess the implications of using such a high water content fuel. Tests were carried at various operating conditions. A thorough heat release analysis was performed in order to understand the benefits and challenges of using such a fuel. It was found that efficiency remains nearly unchanged for up to 30% v/v of water mixtures. Combustion duration was nearly unaffected with only an increase on ignition delay for up to this percentage of water.