The intake dilution strategy is an important method to optimize engine performance. The influences of diluted gas thermal and dilution effect on engine performance were deeply researched. The results show that both thermal and dilution effects result in the decrease of incylinder combustion temperature and peak heat release rate, the prolonging of combustion duration, the delay of heat release phase, the reduction of NO_x emission and the increase of THC emission. The thermal effect will deteriorate the engine economy, while the dilution effect will improve it due to the isentropic index increase of working substance.