Abstract In transcritical CO2 heat pump water heater, the pinch point in gas cooler and the utilization of internal heat exchanger (IHX) both have a significant impact on the optimal discharge pressure and system performance. A theoretical model was developed to investigate the effects, and the results demonstrated that when the water inlet temperature was low, the pinch point prevented the gas cooler outlet temperature from approaching the water inlet temperature at low discharge pressure, which impaired the coefficient of performance (COP). The application of IHX could reduce the gas cooler outlet temperature by 4.9 °C when the water inlet temperature was 10 °C and the discharge pressure was 8.5 MPa. In this condition, combining with the subcooling effect of IHX, the COP was accordingly improved by 26.3%. Regardless of the working condition, using IHX lowered the optimal discharge pressure and enhanced corresponding optimal COP. In addition, parametric analyses were conducted, and the results indicated that the augment of water outlet temperature and ambient temperature resulted in the rise of optimal discharge pressure. The increase of water inlet temperature mostly enlarged the optimal discharge pressure as well. Overall, the optimal discharge pressure varied within a range of 8.53 MPa to 13.38 MPa. The reduction of optimal discharge pressure caused by using IHX intensified with the increase of water inlet and outlet temperature. Nevertheless, the effect of ambient temperature was various depending on the working condition. The reduction of optimal discharge could be up to 1.18 MPa when the effectiveness of IHX was 0.6.