In the present study a modified CFD code KIVA3V was used to simulate the spray combustion in a small DI diesel engine fueled with DME. The improved spray models consider more spray phenomena such as cavitation flow in nozzle hole, jet atomization, droplet second breakup and spray wall interaction. Otherwise, a reduced DME reaction mechanism is implemented in the combustion model, and a new turbulent combustion model-Partial Stirred Reactor (PaSR) model is selected to simulate the spray combustion process, the effects of turbulent mixing on the reaction rate are considered. The results of engine modeling based on those models agreed well with the experimental measurements. Study of temperature fields variation and particle traces in the combustion chamber revealed that the engine combustion system originally used for diesel fuel must be optimized for DME.