To enhance the capacity of heat pump water heaters (HPWHs), high energy density phase change material (PCM) was used in two experimentally tested HPWH prototypes. Preliminary findings showed that in the PCM, stored thermal potential energy could be effectively converted into sensible heat in the water over a slight temperature difference, with the goal of increasing the capacity of hot water above a desired cut-off temperature. This exchange of energy results in an increased amount of hot water necessary for mixing at the location utilized by the consumer. It was also found that for a wrapped HPWH, there was an average increase of 27.7% in the capacity when 7.6 L of novel PCM filled spherical capsules were added to a 22.7 L tank downstream of the HPWH. In the second design (Beta), PCM capsules were immersed into the tank with a cylindrical geometry, and the UEF was increased by 5.5% over the baseline HPWH test result. As for the Beta design, heat loss was reduced significantly compared to a typical HPWH and the Alpha design. Food-grade PCMs were selected as appropriate. The novel encapsulation design increased the effective conductivity inside the capsule by adding metal fins.