The utilization of nanofluids in thermal engineering presents a promising avenue for addressing high-temperature challenges. Similarly, many industries still use air-cooled intercoolers for multistage air compressors which results in lower efficiency of the system. This study explores the application of Al2O3 nanoparticles mixed with water as a base fluid to analyze the effect of intercooling in a two-stage reciprocating air compressor. The study employs a shell and tube heat exchanger with parallel and counter flow conditions. The computational analysis, facilitated by computational fluid dynamic software compares the thermal conductivity and heat transfer rates of water and Alumina Oxide based nanofluid to an air-intercooled system. Additionally, the study evaluates the isothermal and volumetric efficiency of the compressor, along with the work requirements for its low-pressure and high-pressure cylinders without using a chiller or external medium. While, achieving ideal intercooling conditions remains elusive in practical experiments, ongoing research focuses on enhancing intercooler efficiency through various nanofluid techniques. The findings suggest notable enhancements in isothermal efficiency by 7.18% and reductions in work input by 3.4% for the air compressor under specified parameters.