A diallel study was conducted during 2012-13, 2013-14 at Horticultural College and Research Institute, Periyakulam, Tamil Nadu Agricultural University, India to assess the extent of heterosis and inbreeding depression in chilli. Five crosses namely, K 1 x Arka Lohit, LCA 625 x K 1, Pusa Jwala x K 1, Pusa Jwala x PKM 1 and K 1 x PKM 1 exhibited higher percentages of heterobeltiosis, revealing involvement of non additive genes and these crosses may be considered as the promising crosses for yield. The crosses gave higher heterobeltiosis in F 1 which showed low inbreeding depression in F 2 generation. The desirable inbreeding depression that is negative in direction was observed in K 1 x PKM 1 and K 1 x Pusa Jwala for yield and yield contributing characters. Significant and positive heterosis with low inbreeding depression for yield and yield related traits were exhibited by Pusa Jwala x PKM 1, LCA 625 x K 1 and K 1 x Arka Lohit. The segregating materials generated in F 2 generation may be utilized for the identification and selection of desirable recombinants in advanced generations in order to develop high yielding varieties with specific attributes.