Using the gear up throttle down concept, suitable power take off (PTO) speed required to run a PTO powered generator was decided. For this PTO test was carried out using an eddy current dynamometer. The tractor engine was loaded to different torque values at different engine speeds for obtaining constant PTO power corresponding to the full load of the generator. Fuel consumption, smoke level, exhaust gas temperature and coolant temperature were measured during PTO test. Engine speed fluctuation and engine overloading were also observed to judge whether the engine was running smoothly, or it was overloaded. The specific fuel consumption was reduced from 268.9 g/kW h at 1579 rpm to 242.9 g/kW h at 1000 rpm. Considering the engine speed fluctuation, overloading of the engine, rapid rise of smoke level, exhaust gas temperature and coolant temperature, an engine speed of 1215 rpm was recommended instead of 1579 rpm (corresponding to standard PTO speed of 540 rpm). A suitable power transmission system comprising belt and pulley drive was designed to run the generator at rated speed of 1500 rpm. When the generator was operated at reduced PTO speed of 415 rpm (corresponding to engine speed of 1215 rpm) in comparison to standard PTO speed of 540 rpm, fuel saving of 0.35 l/h to 0.55 l/h and 0.43 l/h to 0.48 l/h was achieved at different alternating current (AC) and direct current (DC) loads on the generator, respectively. Following this approach, a considerable amount of fuel energy could be saved while generating electric power using tractor. Efficient use of fuel will reduce the overall production cost of agricultural products as well as help in protecting our environment.