To reduce fuel consumption, a transmission is shifted into a neutral state, called neutral idle, when a vehicle stops in a drive mode. During a transition from a neutral idle state to an engaged state, the engine torque is controlled to avoid excessive shift energy and to mitigate acceleration drop. Specifically, the engine torque is set to a level equal to a sum of a transmission torque capacity and an offset, which is a function of accelerator pedal position. The transmission torque capacity is calculated based on the engaging shift element torque capacity and torque ratios associated with the kinematics and the torque converter. To accommodate noise factors such as variation over time, the offset function is adapted in response to measured clutch energy and acceleration drop.