About 40% of total U.S. energy consumption was consumed in residential and commercial buildings. Improved air-conditioning technology has by far the greatest potential impact on the electric industry compared to any other technology that uses electricity. This paper describes the development of an innovative natural gas, propane, LNG or bio-gas IC engine-driven heat pump (GHP) with desiccant dehumidification (GHP/DD). This integrated system has higher overall efficiencies than conventional equipment for space cooling, addresses both new and existing commercial buildings, and more effectively controls humidity in humid areas. Waste heat is recovered from the GHP to provide energy for regenerating the desiccant wheel and to augment heating capacity and efficiency. By combining the two technologies, an overall source COP of greater that 1.5 (hot, humid case) can be achieved by utilizing waste heat from the engine to reduce the overall energy required to regenerate the desiccant. Moreover, system modeling results show that the sensible heat ratio (SHR- sensible heat ratio) can be lowered to less 60% in a dedicated outdoor air system application with hot, humid cases.