In this paper, the fuel economy of plug-in type hybrid electric vehicle is investigated through simulation. For the simulation study, 2 shaft type parallel hybrid powertrain is chosen and its operation modes are described. The operation algorithm which yields operation points of minimal fuel cost is suggested. Dynamic model fur operation of HEV and simulation procedure is described. Simulation results of fuel economy is compared to non plug-in type HEV as well as conventional vehicle. With total driving distance of 37km and full usage of 2kwh of electric energy stored in battery pack, plug-in type HEV shows 28-30% improved fuel economy compared to non plug-in type HEV and 86-93% improved fuel economy compared to conventional vehicle.