The combustion and emission characteristics of a direct injection CI engine fuelled with DME(Dimethyl Ether) and diesel fuel were compared at idle engine speed(800 rpm) with various injection parameters. An optical single cylinder diesel engine equipped with a common-rail fuel injection system was constructed to investigate combustion processes of DME and diesel fuel. The combustion images were recorded with a high-speed video camera system. The results demonstrated that the DME-fuelled engine was superior to the conventional diesel engine in terms of engine performance and emissions. The optimal injection timing of DME was located around IDC(Top Dead Center), which was roughly same as that of diesel fuel. As the injection timing was advanced much earlier than TDC, NOx (Nitric Oxides) level increased considerably. NOx emission of DME was equal or a little higher than that for diesel fuel at the same injection pressure and timing because of higher evaporation characteristics of DME. Throughout all experimental conditions, DME did not produce any measurable smoke level.