The purpose of this paper is to investigate the effect of air-fuel ratio on the combustion and emissions characteristics of spark ignition (SI) gasoline engine fueled with bio-ethanol. A 1.6L SI engine with 4 cylinders was tested on EC dynamometer. In addition, lambda sensor and lambda meter were connected with universal ECU to control the lambda value which is varied from 0.7 to 1.3. The engine performance and combustion characteristics of bio-ethanol fuel were compared to those obtained by pure gasoline. Furthermore, the exhaust emissions such as carbon monoxide (CO), unburned hydrocarbon (HC), oxides of nitrogen ($NO_X$) and carbon dioxide ($CO_2$) were measured by emission analyzers. The results showed that the brake torque and cylinder pressure of bio-ethanol fuel were slightly higher than those of gasoline fuel. Brake specific fuel consumption (BSFC) of bio-ethanol was increased while brake specific energy consumption (BSEC) was decreased. The exhaust emissions of bio-ethanol fuel were lower than those of gasoline fuel under overall experimental conditions. However, the specific emission characteristics of the engine with bio-ethanol fuel were influenced by air-fuel ratio.