Exhaust gases from diesel engines can be an adequate source of energy to run a bottoming Rankine cycle to increase the overall efficiency of the engine as it contains a significant portion of input energy. In this research, an automotive diesel engine was tested to estimate the available energy in the exhaust gas. Shell and tube heat exchangers were used to extract the heat from the exhaust gas and the performance of the two shell and tube heat exchangers were investigated with parallel and counter flow arrangements using water as the working fluid. The results obtained were below satisfactory as these heat exchangers were purchased from the marketplace and not optimized for this particular application. Thus attempts were made to optimize the design of the heat exchanger by computer simulation using the available experimental data. Important parameters of the heat exchanger such as number and diameter of the tube, length of the heat exchanger and diameter of the shell were optimized by computer simulation. Using the optimized heat exchangers the additional power generation was estimated by considering actual turbine efficiency. The proposed heat exchanger was able to generate 23.7% additional power at 30 bar working pressure which resulted in more than 20% improvement of brake specific fuel consumption. It was also found that counter flow orientation of the heat exchanger was most suitable for this application. Thus waste heat recovery technology has a great potential for saving energy, improving overall engine efficiency and reducing toxic emission per kW of power produced.