Investigation on diesel engine with minimized fuel consumption rate and increased output power is not the meaningful procedure if irreversibility in the thermodynamic system is ignored. This current procedure is aimed to signify the importance of exergy analysis in diesel engine performance on the perspective of Second law of thermodynamics analysis. In this study, diesel-cotton seed oil blends were tested on engine running with direct fuel injection mode of operation. The experiments were conducted with Diesel(D), 5% cotton seed oil-95% diesel(CB5), 10% cotton seed oil-90% diesel(CB10) and 15% cotton seed oil-85% diesel(CB15) for estimation of brake power, energy rate and exergy rate in the fuel and exhaust, heat release rate, exergy destruction, ideal efficiency (I law) and actual (II law) efficiency. The results outcome that an increase in trend was observed in the fuel exergy and thermal exergy loss with engine speed for D, CB5, CB10 and CB15. The loss of exergy, heat release rate, % of exergy and exergy transferred through exhaust gases decreased for CB5, CB10 and CB15 compared to diesel.