Abstract: A hybrid space and water heating heat pump system includes a heat pump including an outdoor assembly and an indoor assembly; a hot water module including a first heat exchanger, a controller, and a water pump connected to a water line, the first heat exchanger being configured for heating water; and a water heater in fluid communication with the hot water module, the water heater configured for receiving heated water from the first heat exchanger; wherein the controller is configured to select between one of conditioning an interior space or heating of the water in the first heat exchanger; and wherein the heat pump is configured for circulating a refrigerant through a first refrigerant circuit in response to the conditioning of the interior space and circulating the refrigerant through a second refrigerant circuit in response to the heating of the water in the first heat exchanger.