In this paper, we investigate the effect of water mixed with methanol as a fuel on the performance of a small 2-cycle spark ignition engine. The water mixing ratio in methanol is varied from 0 to 20% by weight. Experiments at various excess air ratios and ignition timings are carried out under a constant delivery ratio and a constant engine speed. The mean combustion pressure in the cylinder is measured with the pressure tap fixed in the cylinder head. We attempted to analyze characteristics of the combustion process using the indicated pressure diagram. The results show that the methanol fuel containing water up to 20% is useful for improving the performance of a small 2-cycle IS engine, for example, increased brake power and thermal efficiency and more compact mechanism.