This is the second of a two-part study that examines, from the exergy management standpoint, the fundamental thermodynamic requirements for maximizing internal combustion (IC) engine cycle efficiency. In Part 1, it is shown that the strategy to minimize exergy destroyed due to combustion reduces to carrying out combustion at the highest possible internal energy state. Based on this optimal strategy, the present paper examines the remaining elements of IC engine architecture — reactant preparation and product expansion (work extraction) — from the standpoint of managing the associated exergy flows to improve overall engine efficiency. When considered on its own, work extraction is maximized when the combustion products expand to the environmental dead state, with zero exergy left in the exhaust. However, this optimality condition is mismatched to post-combustion conditions for most fuel—air systems, and manifests as hot exhaust with high exergy even upon expansion to ambient pressure. Several strategies to alleviate the mismatch, via preparation of the fuel—air mixture before combustion commences, are considered: reactant compression, dilution with exhaust or excess air, and heating or cooling. These strategies entail trade-offs between exergy destruction due to combustion, and exergy transfers in the form of work (compression), matter (dilution), or heat transfer. The consequent effects on optimal IC engine cycle efficiency are systematically analysed and catalogued.