Aggregation Induced Emission (AIE) luminogens exhibit no or faint emission in dilute solution and are induced to emit when aggregated with restriction of intramolecular motion as the principle mechanism. We investigated the role of hydrophobic interaction in AIE effect by varying the alkyl chain length of Carbazole-Barbituric acid (CBA) D-π-A system. We synthesized six CBA conjugates, studied their photophysical properties and morphological changes upon aggregation by varying water: tetrahydrofuran ratio. We performed thermal lens experiment in all CBA conjugates to understand the variation in radiative and non-radiative decays upon aggregation. Both aggregation and hydrophobic interaction is found to play significant role in tuning thermal diffusivity of CBA conjugates. The knowledge about their energy levels was gained by using DFT in Gaussian 09 program package. Perturbation of energy levels associated with molecular aggregation open up the possibility of such D-π-A system in nonlinear optics. The open aperture Z-scan technique with Nd:YAG laser at 1064 nm was utilized to measure the change in two-photon absorption (TPA) coefficient at different stages of aggregation and as a function of alkyl chain lengths. We observed an aggregation enhanced TPA and could tune the TPA in aqueous solution by changing the alkyl chain length. Experimentally observed TPA coefficient showed the same trend as obtained in DFT calculation for hyperpolarizability. Furthermore, for practical utility we fabricated CBA conjugate doped PMMA thin films for low threshold optical limiting applications.