This was question for which I could not find answer in XBMC documentation/wiki. So thought this might be useful for someone who wants do the same thing.
The solution was actually simple. In the left pane of XBMC, there is play button, so you have to insert the DVD and press this button to start playing DVD.
But there is an issue, when you do this when you are starting XBMC from within Gnome or KDE environment. XBMC will not play the DVD. In this case you have disable auto mount of dvd in the Gnome or KDE environement.
Read the docs here to do it – https://help.ubuntu.com/community/Mount/USB