Abstract: In order to investigate the effect of variable compression ratio (VCR) on fuel economy and emission reduction, a model of the heavy duty diesel engine C6.6 equipped with inter-cooling exhaust gas recirculation (EGR) and a variable geometry turbocharger (VGT) was presented and analyzed based on the GT-Power software and its validity was verified with a predictive direct-injection jet combustion model. The simulation results showed that the use of variable compression ratio improved fuel economy to 7.2% at low and medium load, also NOx and soot emissions could meet the need of Euro V values for ETC with corresponding EGR fraction and VGT strategy. Variable compression ratio can improve the fuel economy and emission performance of direct injection diesel engine effectively.