A representative group of 38 improved basmati lines including maintainers of sterile lines were studied for genetic diversity utilizing Mahalanobis $D^2$ statistics. A wide diversity was observed having ten clusters with high intra- and inter-cluster distance. Heterosis was estimated utilizing the cytoplasmic male sterile lines from the clusters having high intra- and inter-cluster distance. Highly heterotic hybrids were obtained from the hybridization programme. Cross combinations IR68281A/Pusa 1235-95-73-1-1, IR68281A/RP 3644-41-9-5, Pusa 3A/UPR 2268-4-1, IR 68281A/Pusa Basmati-1, IR68281A/BTCE 10-98, and IR58025A/HKR 97-401 were found to be highly heterotic for grain yield/plant with other agronomic and quality traits. Additionally, a positive association of intra-cluster distance with heterosis was observed, which could be utilized as a guideline for predicting heterosis in basmati hybrid rice breeding program. Also, a positive association between inter-cluster distance and heterosis was observed.