Development of a variety having high oil content and desirable fatty acid compositions is a major objective of groundnut (Arachis hypogaea L.) breeding programmes. To study the gene action (through combining ability) and heterosis for oil and fatty acids, an experiment was conducted using a 4 × 4 full diallel method. Four parents and their 12 F1 hybrids were evaluated following a randomized complete block design. Data were recorded for oil, fatty acids and oleic-linolenic (O/L) acid ratio. Highly significant genotypic variation was found among the parents and their F1 hybrids for the studied traits. The combining ability studies (general, specific and reciprocal) reflected that the oil and fatty acid traits were controlled by both non-additive and additive genes having significant maternal effects. Results also revealed that the parent China Badam was the best general combiner for oil, linolenic acid and O/L ratio whereas the parent Binachinabadam-4 for oleic and linoleic acids. Best SCA performance was found from the cross Dacca-1 × China Badam and Binachinabadam-4 × China Badam for oil, oleic- and linolenic-acid contents. Significant heterosis for oil content was observed in F1 hybrids obtained from the cross Binachinabadam-4 × China Badam and its reciprocal cross. The cross China Badam × GC (24)-1-1-1 showed a higher O/L ratio (>4) along with lower level of saturated fatty acids. Therefore, these crosses could be exploited in future breeding programmes to develop new lines for higher oil and healthy fatty acid compositions.