Abstract Liquid air energy storage (LAES) is increasingly popular for decarbonizing the power network. At off-peak time, ambient air after purification is liquefied and stored; at peak time, the liquid air is discharged to generate power. One of the key challenges for the LAES system is the lower economic benefit as peak electricity is usually the only source of income, leading to a longer payback period of ~15 years. To address this issue, this paper, for the first time, proposes a multifunctional LAES system, which not only generates peak electricity but also provides pure oxygen and heating. The proposed system is composed of an air separation unit (ASU), a nitrogen liquefaction unit (NLU) and a power generation unit (PGU). Thermodynamic and economic analyses are carried out on the proposed system. Compared with the baseline LAES system (NLU + PGU), the multifunctional LAES system has a lower round trip efficiency of ~0.39 due to the extra electricity consumption by the ASU. However, it shows a much better economic performance with additional benefits from pure oxygen and heating. In a project life-span of 30 years, the multifunctional LAES system (10 MW/80 MWh) has a short payback period of ~5.7 years. Furthermore, it has a savings-to-investment ratio of 3.12, which is ~153% higher than that of the baseline LAES system. Investigation on the system operation strategy suggests that the ASU should operate at full time. The proposed system provides a feasible way to improve the economic benefits of the LAES system, thus promoting its wide applications.