For realizing a premixed charge compression ignition (PCCI) engine, the effects of bio-ethanol blend oil and exhaust gas recirculation (EGR) on PM-NOx trade-off have been investigated in a single cylinder direct injection diesel engine with the compression ratio of 17.8. In the present experiment, the ethanol blend ratio and the EGR ratio were varied focusing on ignition delay, premixed combustion, diffusive combustion, smoke, NOx and the thermal efficiency. Very low levels of 1.5 [g/kWh] NOx and 0.02 [g/kWh] PM, which is close to the 2009 emission standards imposed on heavy duty diesel engines in Japan, were achieved without deterioration of the thermal efficiency in the PCCI engine operated with the 50% ethanol blend fuel and the EGR ratio of 0.2. It is found that this improvement can be achieved by formation of the premixed charge condition resulting from a longer ignition delay. A marked increase in ignition delay is due to blending ethanol with low cetane number and large latent heat, and due to lowering in-cylinder gas temperature on compression stroke based on the EGR. It is noticed that smoke can be reduced even by increasing the EGR ratio under a highly premixed condition.