Energy is the capacity to do work or to cause the changes. It generally consists of two parts, namely, available energy also called as exergy and other is unavailable energy also called as anergy. The available energy is the useful part of the energy from which maximum useful work is obtained. Exergy is related and dependent on system – environment combination and thus is an extensive property. Energy analysis involves the use of conservation of mass and energy principles. Exergy analysis, however, includes energy analysis along with the implementation of basic and fundamental principles of the second law of thermodynamics. Exergy analysis includes an analysis of individual components or parts of a system followed by system analysis as a whole, thereby measuring system performance. Further, it enables to locate areas of major exergy destruction (losses) takes place in the system, which can be reduced by suggesting remedies to overcome the same. This research paper includes energy and exergy analysis of a single cylinder four stroke diesel engine.