Homogeneous charge compression ignition (HCCI) is a new engine technology with fundamental differences over conventional engines. HCCI engines are intrinsically fuel flexible and can run on low-grade fuels as long as the fuel can be heated to the point of ignition. In particular HCCI engines can run on "wet ethanol:" ethanol-in-water mixtures with high concentration of water Considering that much of the energy required for processing fermented ethanol is spent in distillation and dehydration, direct use of wet ethanol in HCCI engines considerably shifts the energy balance in favor of ethanol. The results of the paper show that a HCCI engine with efficient heat recovery can operate on a mixture of 35% ethanol and 65% water by volume while achieving a high brake thermal efficiency (38.7%) and very low NOx (1.6 ppm, clean enough to meet any existing or oncoming emissions standards). Direct utilization of ethanol at a 35% volume fraction reduces water separation cost to only 3% of the energy of ethanol and coproducts (versus 37% for producing pure ethanol) and improves the net energy gain from 21% to 55% of the energy of ethanol and coproducts. Wet ethanol utilization is a promising concept that merits more detailed analysis and experimental evaluation.