Energy consumption in the United States is increasing at a rate of over 4% a year. In the search for new fuel alternatives and energy sources, there is a strong national concern to conserve the existing available energy sources. At present, the water heater accounts for approximately 15% of the energy consumption in a typical household. On the national level, this represents 4% of the total energy consumption in the United States. The purpose of this project is to develop and test electric water heaters whose efficiency is substantially greater than those units anticipated for the near term residential market. A reverse Brayton air-cycle heat pump water heater has been designed for residential applications. The system consists of a compressor/expander, an air-water heat exchanger, an electric motor, a water circulation pump, a thermostat, and fluid management controls. The present paper reports the design study and development testing.