Oil is primarily used for lubricating compressors in a Refrigeration system. This results in an Oil-refrigerant mixture being formed which has poor heat transfer capacity and comparatively higher pressure drop. Oil separators are used to remove and filter out this oil from the mixture to improve the performance of the system. This oil is otherwise disposed off, resulting in severe economic and environmental hazards. The main objective of the present work is to design a compact and highly efficient Oil separator for Ammonia Refrigeration System. Various alternative designs of an Oil separator have been proposed. Weight, cost, strength, durability, and effectiveness of each design were considered independently, and a final decision to implement Vertical Demister type Oil Separator has been suggested. Even a small increase in separation efficiency would lead to considerable cost and energy savings.