It is estimated that only heating and cooling take about one third of the total energy consumption worldwide. However, the conventional heating and cooling systems have low efficiencies. Also, boilers and electric heaters that are mostly used to generate both domestic and industrial hot water are inefficient and high energy consumers. For this reason, cascade heat pumps which are known to be very energy efficient and have less environmental impact are being promoted to replace conventional heating, cooling and hot water systems. In this study, a newly designed cascade heat pump by twostage water heating method has been experimentally investigated. By adopting the auxiliary heat exchanger, the performance of the system was increased. The performance enhancement rate of the system could be maximized by adjusting the low stage compressor speed rather than the high stage compressor speed. The performance of the system with the auxiliary heat exchanger was enhanced by 16.5%.