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How does a tankless hot water heater work? Turn on a hot tap and the unit springs to life in about a second. Here is what happens inside, step by step.
A tankless water heater, also called an on demand water heater or instantaneous water heater, heats water only when you need it. There is no tank storing hot water. Instead, cold water flows through a heat exchanger that is heated by a gas burner or electric elements, and comes out hot.
If you’ve wondered how do tankless water heaters work compared with a tank, the short answer is that they heat water as it passes through instead of storing it. Here’s the tankless water heater how it works sequence in detail.
Condensing models have a second heat exchanger that captures heat from the exhaust, cooling it enough to condense water vapor. That raises efficiency above 90% and produces acidic condensate that must be drained. Learn more in condensing vs non-condensing.
Electric models replace the burner with heating elements inside chambers that water flows through. When the flow sensor detects demand, the control board switches on the elements, often in stages, and adjusts power to hit the set temperature. There is no combustion, no vent and no fan. Electric units need a large electrical supply, which is why they are sized in kilowatts. Compare fuels in gas vs electric tankless water heaters.
Every tankless unit has a fixed maximum heating power. The colder the incoming water, the more of that power is needed per gallon, so the unit can deliver fewer gallons per minute. That is why sizing depends on your temperature rise. Our sizing guide explains it with charts.
What temperature should a tankless water heater be set at? For most homes, 120°F is the recommended setting. It is hot enough for showers and dishwashers and low enough to reduce scald risk. Some households set 110°F to reduce energy use further. Unlike a tank, a tankless unit doesn’t need a high setting to "store" extra hot water.
Even an "instant" water heater can’t speed up the water already sitting in your pipes. The cold water between the heater and the faucet has to clear first. Add a recirculation pump or a point-of-use heater at distant fixtures to cut the wait.
| Component | Job |
|---|---|
| Flow sensor | Detects water flow and tells the unit to start |
| Burner or elements | Produces heat |
| Heat exchanger | Transfers heat to the water |
| Fan and venting (gas) | Supplies combustion air and removes exhaust |
| Gas valve (gas) | Modulates fuel to match demand |
| Thermistors | Measure inlet and outlet temperature |
| Control board | Runs the system, shows error codes |
| Inlet filter screen | Catches debris entering the unit |
| Freeze protection heaters | Prevent freezing in cold weather |
| Isolation valves | Let you shut off water and flush the unit |
When something goes wrong, the control board shows an error code. See our tankless water heater error codes guide.
A tankless water heater pump isn’t needed for normal operation, though a submersible pump for tankless water heater flushing is used during descaling. And while traditional tanks rely on anode rods (yes, gas water heaters have anode rods too), most tankless units do not.
Compare flow rates, BTU and kW ratings across our tankless range.
Most residential models can be set between about 98°F and 140°F, with some commercial models going higher. Many manufacturers ship units at 120°F, which balances comfort, efficiency and scald safety.
Modern gas tankless water heaters do not have a standing pilot light. They use electronic ignition each time hot water is called for.
Most do not, because there is no steel tank to protect from corrosion. Their heat exchangers are copper or stainless steel. Some hybrid or buffer-tank models are exceptions.
Each unit has a minimum activation flow, often 0.25–0.5 GPM. Below that, the burner won’t turn on. Very low-flow faucets may need adjusting or a unit with a lower activation threshold.
No. They use your home’s water pressure. An optional recirculation pump can be added to deliver hot water faster to far fixtures.
This guide is general information for U.S. homeowners, not professional advice. Gas, electrical and venting work must follow the manufacturer’s instructions and local codes, and in most areas requires a licensed plumber, electrician or gas fitter and a permit. Specifications and prices change; always confirm details on the product page and in the installation manual.
