Because air cooled small engines have very low compression ratio and fixed ignition timing, and work on slightly rich mixtures, their specific fuel consumption and emission values are very high. In this study, some modifications were made to improve performance and to reduce emissions in a small engine. The compression ratio of this engine was raised from 5 : 1 to 10 : 1, the ignition system was powered and the ignition timing was converted to be variable. The modified engine was operated with lean mixtures at high compression ratio. The test results showed that the power of the modified engine was higher than that of the standard engine by similar to 32%. At the same time, the specific fuel consumption and the HC emissions were reduced by similar to 36 and 31% respectively. According to these results, it can be said that there is the potential of performance improvement and emission reduction in the small engines without using any fuel injection system and exhaust control system which increase cost of engine.