This paper presents a thermodynamic analysis of heat pump system using water as a heat source and heat sink. The primary object in this study is the optimization of exergetic efficiency. Two different systems, 2-stream and 1-stream system, are analyzed in detail. Mass flow ratio (the ratio of mass flow rate of water through evaporator to that through condenser) is identified as the most important parameter to be optimized. It is shown that there exists an optimum mass flow ratio to maximize exergetic efficiency. The variation of optimum exergetic efficiency of 2-stream system is quite small and the value lies between 0.2∼0.23 for the range of investigation in this study. However, far better performance can be obtained from 1-stream system. This means considerable irreversibilities are generated through condenser of the 2-stream system. The effects of adiabatic efficiency of compressor-motor unit on the overall system performance are also examined in the analysis.