Developing countries like India is now highly relying on the alternate source of power generation to have uninterrupted power supply for their economic development. Diesel Power generator is one of the solutions in meeting the uninterrupted power requirement. In India, Power generating sets are having stringent emission norms and also the present government policies of removing subsides from Diesel fuel adding the additional burden on operating cost. As such researcher has a tough task to design the product considering the stringent requirement of legislation and performance. The main focus of this research work is to address performance necessities and the noise legislation.The detail methodology has been laid down to analyze and optimize performance and noise of Diesel Generator with respect to cooling system. Cooling fan with drive arrangement has been selected to study the canopied Diesel Generator performance and overall noise emission. Earlier research reveals that Fan power directly proportional to cube of fan speed , . Also Fan speed is major contributor to noise emission of Diesel Generator. After extensive literature survey, eddy current principle with clutch mechanism is selected to analyze the effect on Diesel Generator performance. Study has been carried out with 500 kVA Diesel Generator as per ISO 8528. The complete load matrix has been derived to study the effect on fuel consumption. The analysis revealed very high reduction in fuel consumption at lower load and is up to 12.9%, whereas at higher load is up to 2.8%. Study also focused on simulated field condition and 5% fuel consumption reduction is achieved over the complete cycle. Similar analysis has been carried out to study the effect on noise emission and measurement has been carried out as per the guidelines of ISO 8528, Part 10. The detailed analysis with classical calculation has been done and 4% weighted noise emission reduction has been observed. Thus the eddy current principle with clutch mechanism for fan drive is one of the promising solutions to enhance the performance and reduce noise of Diesel Generator.