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The paper describes the optimization of a 50 cc crankcase scavenged two-stroke diesel engine operating on dimethyl ether (DME). The optimization is primarily done with respect to engine efficiency. The underlying idea behind the work is that the low weight, low internal friction and low engine-out NOx of such an engine could make it ideal for future vehicles operating on second-generation biofuels. Data is presented for the performance and emissions at the current state of development of the engine. Brake efficiencies above 30% were obtained despite the small size of the engine. In addition, efficiencies near the maximum were found over a wide operating range of speeds and loads. Maximum bmep is 500 kPa. Results are shown for engine speeds ranging from 2000 to 5000 rpm and loads from idle to full load. At all speeds and loads NOx emissions are below 200 ppm and smokeless operation is achieved. Design improvements relative to an earlier prototype are described.