The development of highly compact and energy-efficient systems is critical for world energy security and technology leadership. Due to the abundance of natural gas, the natural gas fueled distributed energy systems that lower the energy consumption and utility costs would be ideal in the U.S. as well as worldwide markets. To meet these objectives, researchers from Enginuity Power Systems (EPS) are currently working on the development of an ultra-efficient Combined Heat and Power (CHP) system for residential and commercial applications. These CHP systems generate electricity at the point of use while also meeting the space and water heating demands. Furthermore, a single CHP system replaces the conventional electricity generator, space, and water heating systems in residential and commercial applications. The main technical objective of this research article is the demonstration of the fundamental design and performance characteristics of an EPS’s 6 kW–10 kW CHP system intended for residential applications. The proposed residential system utilized a mirror-balanced, patented, inwardly opposed piston, four-stroke internal combustion engine as a prime mover. This novel four-stroke opposed piston design resolved the scavenging, cooling, and lubrication issues faced by the conventional opposed designs in the market while also maintaining the power density, balancing, and performance benefits. Initially, a series of experiments were conducted on the proposed system for different speeds and throttle openings. Later, the combustion, performance, and quantified energy loss pathways were presented at Wide Open Throttle (WOT) conditions to demonstrate the performance benefits of the proposed system. Finally, a performance-oriented framework was developed for the proposed CHP system for future efforts.