Abstract: An improved heating and cooling system for an associated home or office environment is provided which facilitates efficiency and enhances overall system operation. The operative elements of the heating and cooling system including a compressor, desuperheater, pump, water heater tank, blower, heat exchange unit and central electrical control unit are all contained in a single, common cabinet providing thermal and noise insulation and drain pan-spillage containment. Ambient and stand-by thermal loss is minimized by reason of the cabinet and the proximity of the operative elements therein. Facilitation of the desuperheating function is further provided through defining three distinct water temperature layers within the water heater tank and maintaining predetermined water temperatures within those layers through selective operation of the desuperheater and a bypass arrangement.