A major part of the heat supplied in an IC engine is not realized as work output, but dumped into the atmosphere as waste heat. If this waste heat energy is tapped and converted into usable energy, the overall efficiency of the engine can be improved. The percentage of energy rejected to the environment through exhaust gas which can be potentially recovered is approximately 30-40% of the energy supplied by the fuel depending on engine load. Thermoelectric modules (TEM) which are used as Thermoelectric generators (TEG) are solid state devices that are used to convert thermal energy from a temperature gradient to electrical energy and it works on basic principle of Seebeck effect. This paper demonstrates the potential of thermoelectric generation. A detailed experimental work was carried to study the performance of TEG under various engine operating conditions. A heat exchanger with 18 TEG modules was designed and tested in the engine test rig. Thermoelectric modules were selected according to the temperature difference between exhaust gases side and the engine coolant side. Various designs of the heat exchangers were modeled using CAD and analysis was done using a CFD code which is commercially available to study the flow & heat transfer characteristics. From the simulated results it was found that rectangular shaped heat exchanger met our requirements and also satisfied the space and weight constraint. A rectangular heat exchanger was fabricated and the thermo electric modules were incorporated on the heat exchanger for performance analysis. The study also revealed that energy can be tapped efficiently from the engine exhaust and in near future TEG can reduce the size of the alternator or eliminate them in automobiles.