According to the analysis of the unique working condition in hydraulic excavators, a structure of arm potential energy recovery in parallel hybrid hydraulic excavators was put forward. The force condition of cylinder was analyzed, and the mathematical models of hydraulic components (e.g. cylinder, throttle and hydraulic motor) and electric components (e.g. electric motor and NIMH batteries) were built up. Also, the control strategy of the hybrid excavator, which is equipped with arm potential energy recovery, and the control method of energy recovery were proposed. Theory analysis and simulation results present that, based on the fuel efficiency of the parallel hybrid hydraulic excavator, system's fuel efficiency will be further improved by means of arm potential energy recovery. The energy recovery system has the characteristics of simple structure, higher energy recovery efficiency and controllable recovery speed.