The main purpose of CAE (Computer Aided Engineering) is to shorten the engine design and development period. At the initial stage of engine design, the product profile of engine performance is predicted by engine simulation program. During the concept design stage, basic engine analysis is performed to get the valve train design and the specification of some components. For detail design, finite element analysis is conducted to check the stress limit and endurance limit of some critical parts. An example of application of CAE on a four stroke, 125 cc, water cooled, motorcycle engine is depicted in this paper.