Bio-fuels potentially represent a more environmentally friendly alternative to fossil fuels as they produce fewer greenhouse gas emissions when burned. Ethanol is one such bio-fuel alternative to the conventional fossil fuels. Towards the initiative of sustainable transportation using alternative fuels, it is attempted to develop an ethanol powered engine for commercial vehicles and this paper attempts to explain the 1D thermodynamic simulation carried out for predicting the engine performance and combustion characteristics, as a part of the engine development program. Engine simulation is becoming an increasingly important engineering tool for reducing the development cost and time and also helps in carrying out various DOE iterations which are rather difficult to be conducted experimentally in any internal combustion engine development program. AVL Boost software is used for modelling and simulation. The engine model used in this simulation is a 3.8 L four stroke, four cylinder, spark ignited, turbocharged intercooled engine with port fuel injection. This 1Dthermodynamic model is calibrated in-house for diesel combustion and has more than 95% correlation with the experimental values. Engine combustion with neat ethanol as well ethanol-gasoline blend (E85) is simulated and the results are compared. The simulation results not only helped in validating the design strategy adopted, but also helped in optimizing the combustion hardware. Future work will focus on the proto engine development as per the design strategy finalized and establishing a correlation between the simulation and experimental results.