Air-cooled engines rely on the circulation of air directly over heat dissipation fins or hot areas of the engine to cool them in order to keep the engine within operating temperatures. Air-cooled designs are far simpler than their liquid-cooled counterparts, which require a separate radiator, coolant reservoir, piping and pumps.

Air-cooled engines are widely seen in applications where weight or simplicity is the primary goal. Their simplicity makes them suited for uses in small applications like chainsaws and lawn mowers, as well as small generators and similar roles. These qualities also make them highly suitable for aviation use, where they are widely used in general aviation aircraft and as auxiliary power units on larger aircraft. Their simplicity, in particular, also makes them common on motorcycles.

Most modern internal combustion engines are cooled by a closed circuit carrying liquid coolant through channels in the engine block and cylinder head. A fluid in these channels absorbs heat and then flows to a heat exchanger or radiator where the coolant releases heat into the air (or raw water, in the case of marine engines). Thus, while they are not ultimately cooled by the liquid, as the heat is exchanged with some other fluid like air, because of the liquid-coolant circuit they are known as liquid-cooled.

In contrast, heat generated by an air-cooled engine is released directly into the air. Typically this is facilitated with metal fins covering the outside of the cylinder head and cylinders which increase the surface area that air can act on. Air may be force fed with the use of a fan and shroud to achieve efficient cooling with high volumes of air or simply by natural air flow with well designed and angled fins.

In all combustion engines, a great percentage of the heat generated, around 44%, escapes through the exhaust. Another 8% or so ends up in the oil, which itself has to be cooled in an oil cooler. This means less than half of the heat has to be removed through other systems. In an air-cooled engine, only about 12% of the heat flows out through the metal fins. Air cooled engines usually run noisier, however it provides more simplicity which gives benefits when it comes to servicing and part replacement and is usually cheaper to be maintained.

Many motorcycles use air cooling for the sake of reducing weight and complexity. Few current production automobiles have air-cooled engines (such as Tatra 815), but historically it was common for many high-volume vehicles. The orientation of the engine cylinders is commonly found in either single-cylinder or coupled in groups of two, and cylinders are commonly oriented in a horizontal fashion as a flat engine, while vertical straight-four engine have been used. Examples of past air-cooled road vehicles, in roughly chronological order, include:

During the 1920s and 30s there was a great debate in the aviation industry about the merits of air-cooled vs. liquid-cooled designs. At the beginning of this period, the liquid used for cooling was water at ambient pressure. The amount of heat carried away by a fluid is a function of its capacity and the difference in input and output temperatures. As the boiling point of water is reduced with lower pressure, and the water could not be efficiently pumped as steam, radiators had to have enough cooling power to account for the loss in cooling power as the aircraft climbed. The resulting radiators were quite large and caused a significant amount of aerodynamic drag.

This placed the two designs roughly equal in terms of power to drag, but the air-cooled designs were almost always lighter and simpler. In 1921, the US Navy, largely due to the efforts of Commander Bruce G. Leighton, decided that the simplicity of the air-cooled design would result in less maintenance workload, which was paramount given the limited working area of aircraft carriers. Leighton's efforts led to the Navy underwriting air-cooled engine development at Pratt & Whitney and Wright Aeronautical.