A CO2 heat pump water heater (HPWH) was investigated experimentally and analytically. In the first stage of the study, a baseline performance was measured, investigating the effect of operating parameters on the system performance under typical tank heating scenarios. In the second, the CO2 HPWH was modeled to investigate the effect of optimizing key components. In the third, the oil retention mass, the increase in pressure drop, and the COP degradation were measured as a function of oil mass fraction. In the fourth, two alternative system configurations were investigated for potential performance enhancement; a two-stage compression cycle with internal heat exchanger and a system with a suction line heat exchanger. Overall, the CO2 cycle seems uniquely suited for water heating. CO2 HPWHs have enormous energy savings potential if the cooling from the evaporator can be harnessed during the summer months, and rejected to the environment during the colder months.