Improving thermal efficiency and reducing carbon emissions are the permanent themes for internal combustion (IC) engines. In the past decades, various advanced strategies have been proposed to achieve higher efficiency and cleaner combustion with the increasingly stringent fuel economy and emission regulations. This article reviews the recent progress in the improvement of thermal efficiency of IC engines and provides a comprehensive summary of the latest research on thermal efficiency from aspects of thermodynamic cycles, gas exchange systems, advanced combustion strategies, and thermal and energy management. Meanwhile, the remaining challenges in different modules are also discussed. It shows that with the development of advanced technologies, it is highly positive to achieve 55% and even over 60% in effective thermal efficiency for IC engines. However, different technologies such as hybrid thermal cycles, variable intake systems, extreme condition combustion (manifesting low temperature, high pressure, and lean burning), and effective thermal and energy management are suggested to be closely integrated into the whole powertrains with highly developed electrification and intelligence.