This paper presents a state space model of a two quadrant chopper and PWM inverter-fed Interior Permanent Magnet Synchronous Motor (IPMSM) drive system and its application to hybrid vehicles. The drive system has two different state equations for motoring and regenerating action. This paper presents a common state equation by using State Space Averaging method. Using this model of the IPMSM drive system, detailed simulation and controller design of the drive system, including PWM inverter switching, are given. The validity of this model and usefulness, according to a comparison among Maximum Torque/Ampere control, Maximum Torque/Flux control, and Maximum Efficiency optimization, are confirmed from simulation results.