This article investigates the effect of thermal barrier coating (TBC) on the cylinder components like piston crown top, cylinder liner, cylinder head inside and valves. The thermal barrier coated engines are otherwise known as low heat rejection (LHR) engines. Due to the insulation of the cylinder wall the heat transfer through the cylinder walls to the cooling system is reduced which change the combustion characteristics of the diesel engine. To know the changes during combustion the steady-state LHR engines operation have been studied by applying either the first or second law of thermodynamics. The state of the art of the thermal barrier coating is the plasma spray zirconia. In addition, other material systems have been investigated for the next generation of TBC. The study also focuses on coating method for Plasma Spray Zirconia (PSZ) to improve coating under high load and temperature cyclical conditions encountered in the real engine. The effect of insulation on engine performance, heat transfer characteristics, combustion and emission characteristics are studied and compared with standard (STD) diesel engine.