Performance, emissions and combustion characteristics of a port-injected engine fuelled with hydrous ethanol gasoline blend (E10 - 10% of hydrous ethanol by volume in gasoline) were compared with gasoline operation. Hydrous ethanol blend produced higher power output with lean mixtures at part throttle condition. Higher flame velocity and wider flammability limits of the blend resulted in lower cycle-by-cycle variations in indicated mean effective pressure as compared to gasoline. Hydro carbon emission was also lower due to the oxygen available in the fuel (E10), which enhanced the combustion rate. Higher latent heat of evaporation of the ethanol blend and water present in it resulted in lower in-cylinder temperature, which in turn led to lesser NOx emissions. Thermal efficiency with the blend was higher in the leaner operating conditions than gasoline. Not much difference in performance, emission and combustion characteristics between neat gasoline and E10 were observed at full throttle operation. On the whole, hydrous ethanol blends can be used as a fuel with good performance and low emissions at part load condition. © 2012 John Wiley & Sons, Ltd.