Hydrogen is attracting attention as a good energy-storage medium for renewable energy. Among hydrogen production technologies using renewable energy, water electrolysis is drawing attention as a key technology for green hydrogen production using renewable energy. In particular, polymeric electrolyte membrane water electrolysis systems have several advantages compared to other types of water electrolysis technologies, such as small size and mass, high efficiency, low operating temperature, and low power consumption. However, until now, proton-exchange membrane (PEM) water electrolysis systems have not been reliable. In this study, system failure diagnosis techniques were presented among the various methods for improving reliability. We developed PEM water electrolysis stack models and system models to predict the performance of the system and analyze the dynamic properties using MATLAB/Simulink® 2018a, which have been validated under various conditions. The developed dynamic characteristic simulation model applies hardware-in-the-loop simulation (HILS) technology to configure experimental devices to interact in real-time. The developed PEMWE HILS system accepts signals that control the system, operates the experimental setup and simulation model in real-time, and diagnoses the system’s failure based on the results.