Nanomaterial based heat transfer fluid has become one of the optimistic technologies that ushered a new horizon in the heat transfer process. In this work, TiO2 powder (Degussa P25) was subjected to mechanical milling for 0–16 h and the average particle size was varied from 21.8–13.3 nm. A size induced phase transition of the TiO2 nanoparticles from anatase to rutile was observed and confirmed from both the XRD and RAMAN analysis. It was found that the rutile content increased gradually compared to anatase phase with decreasing particle size. Aqueous TiO2 based nanofluid systems of different milled samples were prepared and heat transfer properties were investigated experimentally. Particle size and phase of the TiO2 nanoparticles both affected the observed thermal conductivity. From the density functional theory based ab initio calculations it was found that the variation in lattice thermal conductivity became negligible when the dimension of the sample is greater than ~23 Å and ~26 Å for rutile and anatase TiO2 respectively, suggesting the phase to be the dominant factor for the observed variation above that size. The DFT study supports our experimental observation indicating that the thermal conductivity of rutile phase is less than that of anatase phase. This work presents for the very first time, a new investigation about the dependency of thermal conductivity on the phase content of TiO2 nanoparticles which may help in explaining various conflicting results in the literature about the thermal conductivity variation of TiO2 based nanofluids.