Engine displacement is defined as the total volume of air/fuel mixture an engine can draw in during one complete engine cycle; it is normally stated in cubic centimetres, litres or cubic inches. In a piston engine, this is the volume that is swept as the pistons are moved from top dead centre to bottom dead centre.

Standard engines

In a standard piston engine (an Otto or Diesel engine), displacement is calculated by multiplying the number of cylinders in the engine with the area of a piston and the length of the stroke. With circular pistons, displacement can be calculated from the bore diameter and stroke using the following formula: Dispalcement = π/4 x bore2 x stroke x numbers of cylinders

Displacement in other engine types

eg Wankel engine is more complicated. Displacement is the difference between max vs. min combustion chamber volume. This is somewhat tricky to calculate, but can be measured by fluid displacement. For instance, Mazda's 13B is a two-rotor engine with combustion chambers of roughly 0.65 liters. At 100% volumetric efficiency, 0.65 liter per rotor face * 3 faces per rotor * 2 rotors gives a total displacement of 3.9 liters. It takes 3 rotations of the eccentric shaft to complete one engine cycle, however. In 2 rotations of the eccentric shaft, comparable to 2 crankshaft rotations on a 4-stroke piston engine, the 13B would displace 2.6 liters. Mazda advertises the 13B as a 1.3 liter engine, which is the volume displaced during a single rotation of the eccentric shaft.
Displacement is equal to the volume of combustible air/fuel mixture ingested during one cycle of all the cylinders at 100% volumetric efficiency. Thus, a four-stroke engine ingests its displacement in combustible mixture in two engine revolutions, while a two-stroke engine needs only one engine revolution to do so.
Engine power is thus dependent on the quantity of air/fuel mixture ingested and the efficiency of its combustion and conversion into power. To increase the quantity of mixture combusted, the engine displacement can be increased, the speed of operation of the engine can be increased, or the mixture quantity (volume) can be delivered at a higher pressure, which is the function of such devices as turbochargers and superchargers. See engine tuning.

All other factors being equal, a larger displacement engine is therefore more powerful than a smaller one. It is the easiest method of adding power since it neither requires higher rotational speeds nor complicated auxiliaries. The ease of adding power this way (along with the lack of performance effects such as turbocharger lag caused by the time needed to spin up the turbine of the turbocharger) led to the sayings There's no substitute for cubic inches or, alternatively, There's no replacement for displacement commonly quoted by devotees of large-engined cars.
The added mass and size reduce a vehicle's maneuverability however, and in applications where that is important, alternative methods for increasing power are commonly employed. Additionally, because the efficiency of the engine is not improved, fuel consumption rises dramatically.
In cars, engines with over 8 litres of displacement are extremely rare in the last half-century and most modern cars utilize engines much smaller than that: in the United States, 1 to 2 litres for smaller cars, 3 to 5 litres for larger and faster cars, and 5 to 8 litres in sports cars. In Europe, cars with a displacement larger than 2 litres are rare, due to taxation discriminating cars with large displacements. Nevertheless cars with displacement greater than 3 liters become more common in Europe due to the SUV and Diesel trend (Diesel engines need larger displacements for the same power output as comparable petrol engines).
Five to 10 litre engines are used in many single and twin engine propeller-driven aircraft. Much larger engines tend to be diesel engines fitted to trucks, ships, railroad locomotives and those used to drive stationary electrical generators. The displacement of each cylinder in such an engine may be much larger than that of a whole car engine.

Governmental regulations

In many nations levels of taxation on automobiles have been based on engine displacement, rather than on power output. Displacement is easy to identify and difficult to modify whereas power output must be tested. This has encouraged the development of other methods to increase engine power.
There are four major regulatory constraints for automobiles: the European, the British, the Japanese, and the American. The method used in some European countries, and which predates the EU, has a level of taxation for engines over one (1.0) litre and another at the level of about 100 cubic inches, which is approximated to 1.6 litres. The British system of taxation depends upon vehicle emissions for cars registered after 1 March 2001 but for cars registered before this date it depends on engine size. Cars under 1549cc qualify for a cheaper rate of tax.
The Japanese is similar to the European taxation by classes of displacement, plus a vehicle weight tax. In the American system, which includes Canada, Australia and New Zealand, there is not this sort of taxation per engine displacement. In The Netherlands and Sweden, road tax is based on vehicle weight.
Displacement is also used to distinguish categories of (heavier) motorbikes with respect to license requirements. In France and some other EU countries, mopeds, usually with a two-stroke engine and less than 50 cm3 displacement can be driven with minimum qualifications (previously, they could be driven by any person over 14). This led to all light motorbikes having a displacement of about 49.9 cm3. Some people tuned the engine by increasing the cylinder bore, increasing displacement; such mopeds cannot be driven legally on public roads since they do no longer conform to the original specifications and may go faster than 45 km/h.
Wankel engines, due to the amount of power and emissions they create for their displacement, are generally taxed as 1.5 times their actual physical displacement (1.3 litres becomes 2.0, 2.0 becomes 3.0), although actual power outputs are far greater (the 1.3 litre 13B can produce power comparable to a 3.0 V6, and the 2.0 litre 20B can produce power comparable to a 4.0L V8). As such, racing regulations actually use a much higher conversion factor.

Conversions

1 L ~ 61 cu in
1 cubic inch ~ 16 cm³
The big engines listed above are mostly 7.0 litres. The 3.5 litre engines listed on American cars today as being large are much smaller than the 350 cubic inch (5.7 L) engines that once were considered medium size.
The 3.5 litre engine is 213 cubic inches. The 1964 Mustang's smallest Ford V8 engine of 289 cubic inches is 4.7 litres.
However, modern engines are much more efficient, using such technologies as an ECU, electronic fuel injection, and variable valve timing. Also, the engines and the total weight of cars they are fitted in are lighter, so the difference in performance is not as great as might otherwise be supposed.