The paper describes the approach, addresses integration challenges and discusses capabilities of the Hybrid Powertrain-in-the-Loop (H-PIL) facility for the series/hydrostatic hydraulic hybrid system. We describe the simulation of the open-loop and closed-loop hydraulic hybrid systems in H-PIL and its use for concurrent engineering and development of advanced supervisory strategies. The configuration of the hydraulic-hybrid system and details of the hydraulic circuit developed for the H-PIL integration are presented. Next, software and hardware interfaces between the real components and virtual systems are developed, and special attention is given to linking component-level controllers and system-level supervisory control. The H-PIL setup allows imposing realistic dynamic loads on hydraulic pump/motors and accumulator based on vehicle driving schedule. Application of fast analyzers allows characterization of the impact of dynamic interactions in the propulsion system on engine-out emissions. Therefore, the H-PIL facility allows optimization of the hybrid system for both high-efficiency and low emissions. The impetus is provided by previous work showing that more than half of the soot emissions from a conventional diesel powertrain over the urban driving schedule can be attributed to transients. The setup includes a 6.4L V-8 International diesel engine, highly dynamic dynamometer, Radial piston pump/motors supplied by Bosch-Rexroth and dSPACE real-time environment with in-house developed simulation of the virtual vehicle.