Engine efficiency improvement is very critical for medium to heavy-duty vehicles to reduce Diesel fuel consumption and enhance U.S. energy security. The tradeoff between engine efficiency and NOx emissions is an intrinsic property that prevents modern Diesel engines, which are generally equipped with exhaust gas recirculation (EGR) and variable geometry turbocharger (VGT), from achieving the optimal engine efficiency while meeting the stringent NOx emission standards. The addition of urea-based selective catalytic reduction (SCR) systems to modern Diesel engine aftertreatment systems alleviate the burden of NOx emission control on Diesel engines, which in return creates extra freedom for optimizing Diesel engine efficiency. This paper proposes two model-based approaches to locate the optimal operating point of EGR and VGT in the air-path loop to maximize the indicated efficiency of turbocharged diesel engine. Simulation results demonstrated that the engine brake specific fuel consumption (BSFC) can be reduced by up to 1.6% through optimization of EGR and VGT, compared to a baseline EGR-VGT control which considers both NOx emissions and engine efficiency on engine side. The overall equivalent BSFCs are 1.8% higher with optimized EGR and VGT control than with the baseline control. In addition, the influence of reducing EGR valve opening on the non-minimum phase behavior of the air path loop is also analyzed. Simulation results showed slightly stronger non-minimum phase behaviors when EGR is fully closed.