Abstract: A combination space heating and tankless hot water heater includes a vertical closed tank, having upper and lower ends, adapted to hold a large reservoir of liquid heat transfer medium therewithin. A high-efficiency gas/liquid heat exchanger, having upper and lower ends, is disposed within the tank, with the upper end of the gas/liquid heat exchanger at the upper end of the tank and the lower end of the gas/liquid heat exchanger at the lower end of the tank. A burner is disposed at the lower end of the gas/liquid heat exchanger to provide hot gases to flow upwards through the gas/liquid heat exchanger for transfer of heat from the gases across the walls of the gas/liquid heat exchanger and to the heat transfer medium. Means for withdrawing and returning the heat transfer medium from and to the tank for forced circulation for space heating are provided and a heat exchanger is disposed within said tank for receiving cold water and supplying domestic hot water.