As gasoline prices rise, plug-in hybrid electric vehicles (PHEVs) may be quickly becoming an economical choice for transportation. This paper explores the policy issues associated with widespread PHEV deployment. These include improving the electric grid performance, enhancing penetration of renewable energy sources and improving energy security, managing air quality and carbon footprint, creating new markets, and planning energy exchange stations that allow for driver flexibility. Coupling the transportation and power systems through PHEVs presents both challenges and opportunities that involve multidisciplinary approach, and proper policy is necessary to take maximize benefit and avoid pitfalls. A multi-layered modeling approach (including transportation, power systems, cognitive behavior, and economic feasibility) that is spatially and temporally encompassing is proposed for evaluating PHEV policy implications.