The present investigation entitled ―Heterosis and gene action studies for fruit yield and horticultural traits in chilli (Capsicum annuum var. annuum L.)‖ was carried out at the Experimental Farms of the Department of Vegetable Science and Floriculture, CSKHPKV, Palampur and Hill Agricultural Research and Extension Centre, CSKHPKV, Bajaura, Kullu to gather information on combining ability, gene action and magnitude of heterosis by following ‗line × tester‘ mating design involving 11 lines and three diverse testers. Lines, testers their 33 cross combinations, along with standard check ‗CH-1‘, were evaluated in a Randomized Complete Block Design with three replications during summer-rainy seasons of 2010 and 2011. Data were recorded on fresh and dry fruit yield/plant along with component traits and reaction to bacterial wilt disease. Sufficient genetic variability was observed for all phonological, morphological, yield and yield contributing, and quality traits during both the years over the environments. Significant genotype × environment interactions for all the characters indicated a definite role of environment on the performance of genotypes/crosses. The line × tester analysis revealed significant differences due to lines, testers and line × tester interaction for majority of the traits at both the locations and pooled over environments indicating appreciable diversity in the experimental material. Lines ‗Jawahar Mirch 283‘, ‗PAU Selection Long‘, LCA 436‘ and ‗LCA 443‘, and tester ‗Surajmukhi‘ were observed to be good general combiners for fresh and dry fruit yield/plant along with related traits. Thus desirable cross combinations involving both or one of these as parents resulted in significant desirable SCA effects and heterosis. ‗PAU Selection Long × Surajmukhi‘, ‗LCA 436 × Pant C1‘, ‗Chilli Sonal × Surajmukhi‘, ‗Jawahar Mirch 283 × Anugraha‘ and ‗Pusa Sadabahar × Surajmukhi‘ were the most promising crosses on the basis of SCA effects for yield and its related traits. The magnitude of non-additive gene action was predominant for majority of the traits with maximum contribution of lines in the expression of gene action. A wide variation in magnitude and direction of heterosis was noticed for majority of the traits with maximum manifestation for fruits/plant, fresh and dry fruit yield/plant. Hybrids ‗Jawahar Mirch 283 × Anugraha‘, ‗PAU Selection long × Surajmukhi‘, ‗Arka Lohit × Surajmukhi‘, ‗LCA 436 × Pant C 1‘, ‗LCA 436 × Anugraha‘ and ‗LCA 443 × Surajmukhi‘ were the most promising crosses with significant heterobeltiosis and economic heterosis for yield and yield related traits and showed maximum consistency by retaining their ranking among top ten crosses over the environments. Based on per se performance, SCA effects and heterosis, ‗LCA 436 × Pant C 1‘, ‗Arka Lohit × Surajmukhi‘, ‗‗PAU Selection Long × Surajmukhi‘ and ‗Jawahar Mirch 283 × Anugraha‘ were the most promising crosses for obtaining superior progenies. Breeding methods namely, single seed descent, reciprocal recurrent selection, bulk pedigree and diallel selective mating system can be employed to obtain transgressive segregants with high yield and desirable horticultural traits in chilli.