The paper describes major design choices and development process used to produce a prototype of a rear-wheel drive parallel hybrid electric vehicle. This diesel electric hybrid vehicle is different from other hybrid with regard to the powertrain. The paper focuses on the design, development and performance evaluation of this unique parallel diesel electric vehicle which is based on multimode hybrid powertrain comprised of a single planetary gear train as an additional transmission along with the manual gearbox of the conventional diesel vehicle and AC induction motor. The implementation of the new design enables to overcome many problems encountered in the traditional vehicles. Constant mesh spur type simple planetary gear set transmission is designed for the intended application. To demonstrate the practical applicability of the transmission and this hybrid configuration, one prototype vehicle is built integrating the transmission. The hybrid system makes it easy to retrofit existing vehicles because the changes required in the vehicle drivetrain are minimum. Unlike the conventional diesel engine, the hybrid vehicle provides significant additional functionality to the driver. Five modes of operation, namely, engine-only, electric-only, hybrid power mode, engine/charge and regenerative braking modes are possible in the developed hybrid vehicle. Even if one system (the electrical system or the IC engine) fails, still the vehicle would remain functional on the other system. Its driving performance, fuel economy and emissions are measured and results are analyzed over a given drive cycle .The results showed that the hybrid vehicle is about 30% faster than the equivalent conventional vehicle. The fuel economy is increased by 26% approximately compared to the conventional powertrain.