This study attempts to develop a conceptual framework to understand the relationship between the psychological contract and employee engagement. The psychological contract has emerged as an important analytical framework to examine the employment relationship. The term “psychological contract” means that the person has a lot of different expectations from the organization and the organization has a lot of different expectations from the person as well. These expectations not only deal with how much work should be done for how much money, but also how workers and organizations should treat each other. Employees and employers should work together so that the goal of setting up a business can be reached. Here the study tries to understand the different aspects of psychological contract and how does it affect the employee engagement which will tested through the empirical evidence.