Biobutanol is a promising alternative fuel, but it is accompanied by a fuel consumption penalty. To mitigate the fuel penalty, air dilution was investigated in a turbocharged gasoline direct injection engine fueled with isobutanol-gasoline (B73). To overcome issues of NOx emissions during air dilution operation, exhaust gas recirculation (EGR) and the combination of EGR and air dilution (EGR-Air) were investigated to reduce NOx emissions and enhance engine performance. The effects of these applications on particulate emissions (PM) were also assessed. Compared to EGR, there was more pronounced improvement in brake thermal efficiency (BTE) for butanol-gasoline engine under EGR-Air. The combustion stability under EGR-Air was acceptable but slightly decreased relative to that under EGR. Lower exhaust gas temperature was observed under EGR-Air with respective to EGR. EGR-Air exhibited similar effective inhibition of NOx emissions, as with EGR, which was more pronounced in reducing NOx emissions at high EGR rate, while EGR-Air reduced NOx by up to 90%. CO emissions were clearly reduced under EGR-Air conditions, which realized a better balance between BTE and NOx emissions with very low NOx concentrations. For a butanol-gasoline engine, the PM emissions under EGR-Air were further lowered compared to EGR, which showed a bimodal size distribution, and the particle sizes corresponding to the particle number peak was in the range of 10–30 nm. The observed particle diameters under EGR-Air were smaller than that with and without EGR.