A light duty downsized engine, named as “z-engine”, was developed, built and tested on the experimental rig. This engine is a two-stroke diesel with a split compression process and poppet valve for the gas exchange. The split compression process provides sufficient time for the longer exhaust process (over 180 CA degrees). The first stage of fresh air compression takes place in a turbocharger, the second part of the compression takes place in the mechanically driven piston compressor with PR of about 4.5 - 5.5. A very brief induction period, which lasts for about 10-22 CA degrees, is followed by a short final compression in the cylinder in which mixing occurs. The external piston compressor which provides all cylinders with a fresh charge, has relatively cold walls and its outlet is connected to an intercooler, so the total compression work is reduced and the fresh charge has a considerably lower temperature in comparison with a conventional diesel engine. Due to the absence of the scavenging process and a large dead volume which is present during the induction process, there is an increased EGR in the z-engine at all operating modes. The increased internal EGR and low temperature at TDC result in low NOx emissions even for normal air/diesel mixture formation and combustion. The total fuel efficiency of the z-engine is approximately same, if not higher, than that of a conventional diesel engine. Due to the specific working process of the z-engine, the HCCI process may be realized even at the full torque (BMEP∼30 bar) and maximum power modes. To achieve this the injection should be carried out at the end of the exhaust and should be terminated prior to the intake starts, when there is no fresh air, and there is a low pressure and high temperature in the cylinder. All these factors result in the rapid evaporation. An intensive intake process disintegrates the remaining of fuel sprays, resulting in formation of homogenous or near homogenous charge and decreases the in-cylinder temperature, which slows down pre-ignition reactions. The increased EGR and low temperature at the final compression stages prolong the ignition delay period and presence of the highly turbulent flow results in in-cylinder homogeneous conditions. A pilot injection or electrical spark initiates ignition of the homogeneous mixture at the optimal moment.To reduce the fuel spray tip penetration in low pressure conditions in the cylinder a pintle-type injector is used for the main fuel injection process. CFD modelling using ANSYS/FLUENT software was performed to produce recommendations for preventing the fuel impingement onto the walls. The thermodynamic analysis using GT-Power software was performed to optimize the piston compressor ports timing. The mixture formation process and combustion were simulated and optimized with deployment of DIESEL-RK software. The detailed chemistry of pre-ignition reactions was simulated to predict the ignition delay period. The obtained computational results were verified using published experimental data.