An underground power House (100 m × 19.5 m × 52 m), is proposed on the left bank of River Chenab near village Banjwar for Dulhasti Stage-II HE Project. Design and construction of large underground caverns has always been a technically challenging task. It is a known fact that stability of large underground structures is affected by factors such as discontinuity characteristics and orientation, mechanical properties of rock mass, geological structure, in-situ stress regime, ground water etc. As such, for locating and optimising the underground powerhouse, area has been thoroughly investigated using geological mapping, geophysical exploration, exploratory drilling and drifting. Rock mass classification has been carried out using RMR, Q and GSI methods. Engineering properties of the intact rock has been determined by laboratory testing, whereas in-situ testing has been undertaken to determine rock mass properties. Test results obtained by in-situ testing have also been compared with empirical values. Paper deals in detail how geological & geotechnical rock mass characterisation has been utilised for arriving at an optimum layout/orientation of the underground powerhouse and associated caverns.