Physical working principle of diesel engine is described. Theoretical analysis of processes that are evolved inside the diesel engine is elaborated. Mathematical model of diesel engine, which is also a model of engine torque generation, is given. Diesel engine is the prime mover of ship propulsion system. Whole ship propulsion system and its components are deathly described in detail, and their mathematical models are elaborated and presented. Simulation model of ship propulsion system is made out of obtained mathematical models. An interaction between propeller and hull dynamics, and resistance of the ship are described. Ship dynamics is given by the non-linear ship motion equation. Coordinated (upper-level) control is elaborated, and linearization of ship propulsion equations performed. Shaft speed control of diesel engine is actually control of injected fuel quantity into the cylinders of diesel engine. The designed ship propulsion system and the method of calculation of shaft speed controller parameters are verified by the computer simulation. The obtained results are compared with the results obtained by the computer simulation of ship with already known controller parameters. The comparison shows the application possibility of the designed ship propulsion system with the same actuator on other similar ships.