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Hybrid powertrain technology, which combines an internal combustion engine and an electric motor as power sources, is penetrating auto markets as a practical approach for reducing vehicle fuel consumption and exhaust emissions. This paper describes the development of an integrated powertrain simulation technology for predicting the fuel economy and exhaust emissions of hybrid electric vehicles with high accuracy and computation speed. Primary paths of kinetic, electric, chemical and thermal energies and their management were modeled. The predicted exhaust emissions and temperatures of the coolant and lubrication oil agreed well with experimental data in various vehicle driving conditions. This simulation was used to study an air-fuel ratio control strategy for reducing NOx at engine restart and to examine an exhaust heat recovery method for reducing fuel consumption and exhaust emissions under cold start conditions.