This paper presents a new development in the field of design process and testing of motor drives, for hardware-in-the-loop (HIL) applications. It consists of implementing the Finite Element (FE) Method applied to electric motors on a real-time simulator; coupled with circuit simulation, this enables accurate real-time simulation of the complete motor drive, including the inverter and the motor. The paper describes the integration of FE-based motor model generated by JMAG (R) software, with the high-end real-time RT-LAB (R) simulator. The complete solution consists of combining accurate FE-based motor model, with inverter model, including important switching parameters, all constructed in the Simulink (R) environment, and simulated on PC-based RT-LAB simulation platform, using ultra-fast processors and FPGA-based inputs/outputs (I/O) boards. By connecting the real-time simulator to an external controller under test, this allows high fidelity HIL simulation of motor drives and enables the design engineers to test the system and the controller with a very accurate, FE-based motor model running in real-time.