Increasing thermal efficiency in diesel engines through low heat rejection concept is a feasible technique. In low heat rejection engines the high heat evolution is achieved by insulating the combustion chamber surfaces and coolant side of the cylinder with partially stabilized zirconia of 0.5 mm thickness and the effective utilization of this heat depend on the engine design and operating conditions. To make the low heat rejection engines more suitable for automobile and stationary applications, the extended expansion was introduced by modifying the inlet cam for late closing of intake valve through Miller's cycle for extended expansion. Through the extended expansion concept the actual work done increases, exhaust blow-down loss reduced and the thermal efficiency of the low heat rejection engine is improved. In low heat rejection engines, the formation of nitric oxide is more, to reduce the nitric oxide emission, the internal exhaust gas re-circulation is incorporated using modified exhaust cam with secondary lobe. Modifications of gas exchange with internal exhaust gas re-circulation resulted in decrease in nitric oxide emissions. In this work, the parametric studies were carried out both theoretically and experimentally. The combustion, performance and emission parameters were studied and were found to be satisfactory.