The potential benefits of external combustion hot air engines: quietness, combustion cleanliness and combustion efficiency, as well as multi-fuel usage, can be realized only if the heat of the combustion gases is efficiently transferred into the working fluid. Heat transfer in external combustion power systems is usually accomplished by a single, relatively large heat exchanger and by a large delta T across the heat exchanger, which leads to poor First and Second Law efficiencies. The basic flaw in the conventional analysis of externally heated power cycles is identified. A novel open cycle external combustion power system described here incorporates constant pressure recuperation and isothermal expansion for power generation, as in a classical Ericsson cycle. The cycle is improved by the use of exhaust heated isothermal combustion and heat transfer into an immediately adjacent isothermally heated expander. Isothermal expansion is compared with adiabatic expansion. It is shown that a fixed value of specific work can be produced at a lower expander inlet temperature with isothermal expansion than with adiabatic expansion. The thermodynamic as well as practical advantages of this lower temperature are noted. The cycle efficiency is shown to be further improved by isothermal combustion. A practical embodiment of the proposed power system in the form of a hot air turbine will be described. Engine performance, in terms of specific power and system efficiency as a function of temperature and expansion ratio, is predicted with realistic assumptions of component efficiencies and system losses.