We have developed a highly efficient boiler system using the 2,600cc Diesel engine. In this system, the co-generation concept is utilized in that the electric power is produced by the generator connected to the engine, and waste heat is recovered from both the exhaust gases and the engine itself by the shell-and-tube heat exchangers. The heat exchanger connected to the engine outlet is specially designed such that it not only recovers waste heat effectively from the exhaust gases, but significantly reduces an engine noise. It is found that the total efficiency(thermal efficiency plus electric power generation efficiency) of this system reaches maximum 96.3％ which is about 15％ higher than the typical Diesel engine boiler system currently being used worldwide.