This paper presents the loss analysis and thermal performance evaluation of a permanent magnet synchronous motor (PMSM) based high-speed flywheel energy storage system (FESS). The flywheel system is hermetically sealed and operates in a vacuum environment to minimize windage loss created by the large diameter high-speed flywheel rotor. The rotor is supported by non-contact magnetic bearing system and its loss is dissipated only via radiation to the housing and stationary components surrounding the rotor. 2-D electromagnetic time-step finite element analysis (FEA) with motion was used for rotor loss analysis and lumped-parameter thermal model was used for transient thermal analysis. The rotor loss is simulated based on actual measured motor/generator current waveforms. The simulated temperature distribution meets the measurement quite well. The developed method was also used for sensitivity studies of some crucial system performance parameters.