Dilution of natural gas fuel with air for use in a pilot ignited direct injection natural gas engine was investigated to evaluate the impact of this strategy on emissions and engine performance. A representative heavy-duty mode (mid to high-load at medium speed) was considered and the equivalence ratio (Φ) and exhaust gas recirculation (EGR) rates were varied from this representative mode. Air dilution resulted in a significant reduction in several pollutants: 90 to 97% reductions in black carbon particulate matter, 45 to 95% reductions in carbon monoxide, 68 to 85% reductions in total unburnt hydrocarbons. NOx emissions were found to increase by between 1.5 and 2.5x, depending on Φ and EGR, for a fixed combustion phasing. Beyond the emissions improvements, the gross indicated thermal efficiency increased by 2.5 percentage points at both high and low EGR rates. At higher EGR rates, this improvement was due to improved combustion efficiency, while the mechanism for efficiency improvement at lower EGR rates was unclear. The application of air-fuel dilution requires compressed air (> 300 bar) to mix with natural gas at high pressures. A system level analysis considered the compression power required by an industrial 3-stage reciprocating compressor and indicated that the gross indicated thermal efficiency improvements could compensate for the compression requirements for engine operation at high Φ.