Two-stroke engines have higher power density than traditional four-stroke engines, and therefore are suitable for engine downsizing. In this work, a four-stroke single-cylinder diesel engine is modified for two-stroke operation, and the combustion system is designed and optimized using a 3D simulation. Three different combustion chamber profiles and injection spray angles are compared to determine an optimized combustion system. The engine test results show that the two-stroke engine equipped with the newly designed combustion system is able to achieve the same effective power output at a much lower speed than the original four-stroke engine, as well as obtain a better indicated thermal efficiency. This indicates that the poppet-valve two-stroke engine could be an effective technical approach for engine downsizing.