"He's a nice guy. I mean, everything I say he agrees with me, no matter what I say," Trump began. "But with the ethanol, really, he's got to come a long way because he's right now for the oil. But I understand because big oil pays him a lot of money. He's got to be oil, right? The oil companies give him a lot of money," according to The Washington Post.
He added: "If Ted Cruz is against ethanol, how does he win in Iowa? Because that's very anti-Iowa."
Trump also appeared to take a veiled shot at Cruz's family background, suggesting Cruz might have trouble appealing to the state's evangelical voters. "I do like Ted Cruz, but not a lot of evangelicals come out of Cuba," he said of the country where Cruz's father, an evangelical preacher, was born.
The attacks came after The New York Times reported that Cruz had questioned Trump's judgment at a closed-door fundraiser, straining the rare detente between two of the race's most outspoken candidates. Trump has gone after his other opponents gleefully and viciously, panning Jeb Bush as low-energy, Ben Carson as "pathological" and Marco Rubio as a lightweight who drinks too much water.
But the billionaire businessman had refrained from attacked Cruz, even as the Texas senator has surged in opinion polls, becoming Trump's most serious challenger in early-voting Iowa.
Trump previewed his attack lines on Twitter Friday morning.
Cruz "should not make statements behind closed doors to his bosses, he should bring them out into the open - more fun that way!" he wrote. Trump predicted Cruz would "fall like all others. Will be easy!"
In the audio leaked to the Times, Cruz said his approach has been to "bear hug" Trump. But he appeared less than eager to engage on Friday.
"The Establishment's only hope: Trump & me in a cage match," he tweeted. "Sorry to disappoint -- @realDonaldTrump is terrific. #DealWithIt"
Cruz's campaign spokeswoman, Catherine Frazier, declined to comment on Trump's attacks.
Several attendees at Trump's town hall event said in interviews before he spoke that they were torn between supporting Trump and Cruz, underscoring the risks each man faces going after the other too strongly.
Indeed, Trump was relatively reserved in his criticism, repeatedly telling the crowd he liked Cruz.
Asked at one point whether he would consider selecting Cruz as his running mate or nominating him to the Supreme Court, Trump was receptive.
"I would say that we would certainly have things in mind for Ted," he said.
Trump took a new approach at the event at the Iowa State Fairgrounds, standing on a riser in the center of supporters, and speaking without a lectern.
During his remarks, Trump stressed the importance of winning the state.
"If we win Iowa," he said, "I think we're going to win everything after that."
The AP contributed to this report.