The feasibility of a promising regenerated diesel engine concept has been under investigation for the past three years under a combined ReJen, Caterpillar, Ultramet and Navy effort. The most novel feature of this concept is a movable regenerator that captures exhaust heat and transfers it to the compressed air. This approach offers the potential to attain the very high specific power and the improved fuel efficiency of a regenerated diesel cycle. Joint ReJen/Navy studies have indicated very high payoff for shipboard applications. Due to the excellent prospects for commercialization of this technology and its high payoff, there ids considerable interest in the regenerated engine. This Phase II effort, a smaller NASA Phase II effort, additional ONR funding, and financial commitment by Caterpillar, will provide the funding to carry this concept into engine testing. This jointly funded, cooperative and integrated effort will be primarily performed by ReJen, Caterpillar, and Ultramet. This proposal covers ReJen and Ultranet tasks in support of this joint effort. The funding requested for the program proposed herein includes a fully funded Phase II SBIR Program and the additional ONR funding. This proposed program consists of task to support Caterpillar*s engine design and testing, investigate improvements to the regenerated engine, develop regenerators for the engine, and establish the payoff for ship propulsion.