In mechanical terms, the internal construction of a diesel engine is similar to its gasoline counterpart—components such as pistons, connecting rods and a crankshaft are present in both. Like a gasoline engine, a diesel engine may operate on a four-stroke cycle (similar to the gasoline unit's Otto cycle), or a two-stroke cycle, albeit with significant dissimilarity to the gasoline equivalent. In both cases, the principal differences lie in the handling of air and fuel, and the method of ignition.

A diesel engine relies upon compression ignition to burn its fuel, instead of the spark plug used in a gasoline engine. If air is compressed to a high degree, its temperature will increase to a point where fuel will burn upon contact. This principle is used in both four-stroke and two-stroke diesel engines to produce power.

Unlike a gasoline engine, which draws an air/fuel mixture into the cylinder during the intake stroke, the diesel aspirates air alone. Following intake, the cylinder is sealed and the air charge is highly compressed to heat it to the temperature required for ignition. Whereas a gasoline engine's compression ratio is rarely greater than 11:1 to avoid damaging preignition, a diesel's compression ratio is usually between 16:1 and 25:1. This extremely high level of compression causes the air temperature to increase to 700 to 900 degrees Celsius (1300 to 1650 degrees Fahrenheit). If a piece of steel were to be heated to that level it would glow cherry red.

As the piston approaches top dead center (TDC), fuel oil is injected into the cylinder at high pressure, causing the fuel charge to be atomized. Owing to the high air temperature in the cylinder, ignition instantly occurs, causing a rapid and considerable increase in cylinder temperature and pressure (generating the characteristic Diesel "knock"). The piston is driven downward with great force, pushing on the connecting rod and turning the crankshaft.

When the piston nears bottom dead center the spent combustion gases are expelled from the cylinder to prepare for the next cycle. In many cases, the exhaust gases will be used to drive a turbocharger, which will increase the volume of the intake air charge, resulting in cleaner combustion and greater efficiency.

The above sequence generally describes how a diesel operates. However, there are striking differences between the four-stroke and two-stroke versions: