Electro-hydraulic systems are widely used in machine tool industries. Energy saving has become the need of modern machine tool industries, as the significance of energy conservation is more prominent by industrial economists. Insignificant increases in efficiency in an electro-hydraulic system will have a substantial economic impact on the total cost. The electro-hydraulic system comprises of auxiliary components and different motors whose energy consumption can differ intensely during machining operation. A comprehensive analysis of the energy utilization can be calculated for an electro-hydraulic circuit and the chances of energy saving in an electro hydraulic circuit are modelled and simulated for the proficient use of energy. This research paper focuses mainly on Modelling and simulation of electro-hydraulic system used in a CNC machine tool by the incorporation of a variable frequency drive for energy efficiency. Simulation results show the prospective improvement in energy conservation. © BEIESP.