Direct injection diesel engine offers better Performance and fuel economy benefit over gasoline engine. Use of performance prediction software helps to reduce engine emission development time, effort and cost of development.In the present paper, 2.2 Liter, 4 cylinder diesel engine was upgraded for 25% higher power, 18% higher torque and emission from Euro3 to Euro4. Base engine performance prediction was done using AVL Boost software. This Model was validated by base engine performance test results. Boost model was used for parametric study to predict target engine performance. Vehicle simulation model was built with use of AVL Cruise software and run with NEDC test cycle. 14 mode steady state speed-load points of engine were obtained with from NEDC cycle with time weightage factor. Engine hardware like turbocharger, injector, piston cavity, EGR cooler and pilot injection strategy were used for engine power and emission optimization on engine test bed. Design of experiments technique was used for emission optimization. INCA software was used for optimization of combustion parameters. Excel base program was developed for comparing engine out hot emissions to chassis dynamometer vehicle hot emissions. After correlation with hot emissions, vehicle was optimized for cold correction in base emission parameters. Three diesel oxidation catalytic convertors were tested and optimized for its precious metal loading on chassis dynamometer to meet Euro4 emissions. This process of emission development reduces considerable engine and vehicle emission development time.