The low penetration rate, excessive torque and drag, poor hole cleaning and formation damage are major impediments in drilling oil and gas wells. These have a major impact on drilling efficiency and well economics. Keeping these in mind, an attempt was made to design a water based drilling fluid system using Indian bentonite clays and tragacanth gum. The effect of tragacanth gum on rheological behavior of three different Indian bentonite water suspensions was studied and a drilling fluid system was developed. The filtrates of these drilling fluids were subjected to formation damage study on the field core using Ruska Liquid Permeameter. The laboratory investigation furnishes that tragacanth gum acts as a good viscosifier and fluid loss control agent. The drilling fluid filtrate also has less effect on formation damage.