Nowadays, to mitigate the global warming problem, the requirement of carbon neutrality has become more urgent. Oxy-fuel combustion (OFC) has been proposed as a promising way of carbon capture and storage (CCS) to eliminate carbon dioxide (CO2) emissions. This article explores the implementation of OFC technology in a practical gasoline direct injection (GDI) engine fueled with gasoline–ethanol blends, including E0 (gasoline), E25 (25% ethanol, 75% is gasoline in mass fraction), and E50 (50% ethanol, 50% is gasoline in mass fraction). The results show that with a fixed spark timing, φCA50 (where 50% fuel is burned), of E50 and E25 is about 4.5 and 1.9° later than that of E0, respectively. Ignition delay (θF) and combustion duration (θC) can be extended with the increase of the ethanol fraction in the blended fuel. With the increase of the oxygen mass fraction (OMF) from 23.3 to 29%, equivalent brake-specific fuel consumption (BSFCE) has a benefit of 2.12, 1.65, and 1.51% for E0, E25, and E50, respectively. The corresponding increase in brake-specific oxygen consumption (BSOC) is 21.83, 22.42, and 22.58%, respectively. Meanwhile, θF, θC, and the heat release rate (HRR) are not strongly affected by the OMF. With the increase of the OMF, the increment of θF is 0.7, 1.8, and 2.2° for E0, E25, and E50, respectively. θC is only extended by 1, 1.1, and 1.4°, respectively. Besides, by increasing the intake temperature (TI) from 298 to 358 K under all of the fuel conditions, BSFCE and BSOC present slight growth trends; θF and θC are slightly reduced; in the meantime, φCA50, φPmax (crank angle of peak cylinder pressure), and the position of the HRR peak are advanced by nearly 1°