An in-wheel motor, as a key part of an in-wheel driving system, needs to satisfy strict restrictions on thermal balance for increasingly high-power density in limited space and weight. Therefore, a new in-wheel motor with an innovative water-cooling system for one newly developed electric vehicle was developed. Based on the mechanical structure of the motor, all potential water-cooling layouts were first designed with consideration of mechanical strength and manufacturability. A thermal conjugate simulation model of the developed in-wheel motor was then built, and its thermally fluid–solid interactions were investigated in this study. All potential water-path layouts of the motor were compared regarding the cooling effect and fluid resistance, which impact the performance of the motor. Fluid flow velocity and fluid state, determined by the water-path layout, significantly impact the cooling effect of the motor. The well-designed water-cooling system significantly reduces the motor’s temperature at a low cost on required coolant-driven pressure which benefits the efficiency of the developed motor. A prototype of the developed motor with the optimal water-path layout was built and tested on the test rig. The developed motor provides outstanding thermal performance.