The dual source multi-functional heat pump (DMHP) system, which can adopt air source and solar energy to provide air conditioning and domestic water for building all the year round, is the integration of solar thermal collecting system and multi-functional heat pump system. This paper presents an investigation into the operation characteristics of the novel DMHP system under various working modes by theoretical and experimental methods. For each working mode, a dynamic model has been proposed and validated with the experimental data. With the verified model, the switch point between air source and solar energy can be identified by comparing the operation performance of different working modes under a range of boundary conditions. The results indicate that the performance of air source space heating mode is superior to that of solar space heating mode with the ambient temperature above 4 degrees C, and solar water heating mode is more efficient than air source water heating mode when the ambient temperature is below 3 degrees C. On this basis, annual performance of the system under different climate conditions reveals that the DMHP system can obtain relatively high COP with the optimal working strategy in the whole year especially for the district with cold winter. Furthermore, the exergy loss ratio in each component of the DMHP system has been discussed to provide the reference for further optimization. In general, the DMHP could be a promising building energy supply system with the advantage of high equipment utilization, compact structure, and full-featured, and this research would promote the development of such an innovative technology leading to significant energy saving and carbon emission reduction in building sector. (C) 2016 Elsevier Ltd. All rights reserved.