A compression ignition engine system allows use of hydrous fuels, in particular hydrous biofuels, with high water content (e.g., 20-85% water). The hydrous fuel is pressurized, and also preferably heated via the engine's exhaust gas, to increase its enthalpy, and is then directly injected into the engine cylinder(s) near top dead center. The system provides brake thermal efficiency increases of 20% or more versus a comparable system using conventional diesel fuel, while allowing the use of inexpensive undistilled or lightly distilled biofuels.