Hydrogen is the most promising alternative fuel in the field of engines. Exhaust heat-assisted methanol dissociation is an attractive approach for generating hydrogen. In this work, simulations are conducted on a compression ignition engine fueled with different proportions of diesel-dissociated methanol gas (DMG) blends at intermediate engine speed, full load, and 0% EGR ratio. The results reveal that the indicated thermal efficiency and indicated mean effective pressure are greatly enhanced, combustion efficiency is increased, and regular emissions of CO, HC, and soot are reduced, while NOx emissions are reduced with increased DMG substitution. In addition, a simulation is conducted at an intermediate engine speed, full load, 15% DMG substitution ratio, and varying EGR ratios of 0–20%. The results indicate that the dual-fuel engine outperforms the original engine with respect to power, fuel economy, and regular emissions, once an optimal EGR rate is adopted.