Ever since the rise of fuel costs, the diesel engine manufacturers throughout the world, for the past few years, have been allocating a great deal of research for the improvement of the engine thermal efficiency. Number of methods are being suggested by various experts and researchers. Among them, the Low Heat Rejection (LHR) Engine concept is at the forefront. From the day of invention of the LHR Engine, maximum thermal efficiency improvement obtained so far is very less. A solemn attempt is made in this research is to develop an Efficient LHR (E-LHR) engine to achieve higher thermal efficiency. Different levels of insulations with special lubricants are tried on the C.I. Engine to achieve the best one in terms of performance, emissions and other combustion parameters. The E-LHR Engine suggested in this work has been tested with different vegetable oils for their suitability. Theoretical investigations are also carried out to verify at which injection pressure and compression ratio, the C.I. Engine has better performance characteristics when Jatropha is used as fuel. All these investigations are useful to lead to a substantial contribution to the development of E-LHR engine.