Traffic Engineering (TE) is the stage which deals with geometric design planning and traffic operation of networks, network devices and relationship of routers for the transportation of data. TE is that feature of network engineering which concentrate on problems of performance optimization of operational networks. It involves techniques and application of knowledge to gain performance objectives, which includes movement of data through network, reliability, planning of network capacity and efficient use of network resources. This thesis addresses the problems of traffic engineering and suggests a solution by using the concept of Multi-Protocol Label Switching (MPLS). We have done simulation in Matlab environment to compare the performance of MPLS against the IP network in a simulated environment. MPLS is a modern technique for forwarding network data. It broadens routing according to path controlling and packet forwarding. In this thesis MPLS is computed on the basis of its performance, efficiency for sending data from source to destination. A MATLAB based simulation tool is developed to compare MPLS with IP network in a simulated environment. The results show the performance of MPLS network in comparison of IP network.