To achieve stable operation and efficient energy conversion from fuel to electricity, a novel opposed-piston free-piston linear generator is proposed in this paper for hybrid electric vehicles. The structure and the working principle of the novel power system are presented and discussed in detail. A gasoline and spark ignition virtual prototype is designed, modeled and simulated. Based on the simulation research, dynamics of the free-piston movement and power flow of the system are analyzed. Comparison with conventional two-stroke engines is described. Special attention is paid to parametric investigation, including different ignition timing, top dead center and mass of the piston assembly. According to the simulation, the newly designed free-piston linear generator is feasible, and a 15 kW average output electric power with a generating efficiency of 42.5% can been obtained.