An improved process for alkylation of isoparaffins with olefins to yield a product which includes a high proportion of highly branched paraffins for making gasoline having improved octane is taught. The improved process comprises isomerizing the olefins and then contacting effluent and isoparaffins with a composite catalyst comprising a Lewis acid and a large pore zeolite and/or a non-zeolitic inorganic oxide. The beneficial effects of low temperature operation and the use of water in the process are also noted. The process results in reduced catalyst aging and obviates environmental problems associated with prior art processes.