Middle-sized $CO_2$ water heater having compressor power of 7.45 kW was designed, and its performances were experimentally tested. Besides, optimum design of the $CO_2$ water heater was conducted by cycle simulation. When ambient temperature of $7^{circ}C$ and hot water outlet temperature of $80^{circ}C$ the $CO_2$ water heater showed the COP of 3.2. As hot water temperature increased the COP is getting decreased due to significant increase of compressor power consumption compared to increasing rate of heating capacity. When ambient temperature increased from $-3^{circ}C$ to $12^{circ}C$ the COP increased by 30%. The optimum components design of a gas cooler, an internal heat exchanger, and an evaporator were conducted, and the experimental correlation between amount of EEV opening and ambient temperature, and hot water temperature was suggested.