A power generation system which utilizes a hydrogen fuelled free piston engine and a linear generator is under development. Free piston engine gives power output more efficiently compared to conventional reciprocating piston engines, because it doesn't have a crank mechanism which brings out mechanical loss. In addition, if hydrogen fuel is used in a free piston engine, it would be possible to make exhaust emission level almost zero without sacrificing the efficiency. In this study, a prototype free piston engine, two-stroke twin cylinder engine, was developed and a linear generation system was incorporated in between the cylinders to get the electricity and the start of the engine, as well. It was possible to operate the engine at a velocity of 17Hz. The free piston engine was found to give different piston positions at TDC (Top dead center) and this irregular piston movement affected significantly both the compression process and the subsequent combustion of the other cylinder of the engine at the same time. Both CNG (Compressed natural gas) and hydrogen were supplied to the test engine and the results showed different combustion characteristics with the fuels used. Since the scavenging efficiency easily gets worse in such low speed operation of the two-stroke engines, hydrogen fuel has been found to give higher burn rate and resultantly to show improvements in power output and the emissions.