In this study, the effect of relative air-fuel ratio (lambda) and compression ratio (epsilon) on engine performance and exhaust emissions was experimentally investigated. The experiments were performed by varying ethanol-unleaded gasoline blends as E0 (100% unleaded gasoline), E10 (10% ethanol and 90% gasoline blend), E30 (30% ethanol and 70% gasoline blend), and E85 (85% ethanol and 15% gasoline blend). In experiments, first the effects of ethanol-unleaded gasoline blends on engine performance and exhaust emissions at 0.931, 1, and 1.069 lambda values were clarified. Second, tests were carried out with compression ratios of 7: 1, 9: 1, and 11:1. The results indicated that the relative air-fuel ratio and ethanol content play an important role in reducing CO (carbon monoxide emissions) and HC (hydrocarbon) emissions. Results also showed that the engine power was slightly decreased, especially at higher engine speeds. A probable knocking phenomenon did not occur with the increase of compression ratio because of a higher octane number of ethanol-unleaded gasoline blends.