Nuclear energy technology has to evolve continuously toward two goals: reduction of the cost of power plants and increasing their safety margins. One approach that can enhance both the economics and safety performance is the adoption of new fuel geometries that increase the fuel surface-to-volume ratio in the core. This will facilitate heat transfer to coolant at lower fuel temperatures. This paper reviews the methodology applied to develop an appropriate design of an innovative internally and externally cooled annular fuel for high-power-density pressurized water reactors (PWRs). It provides an overview of key results obtained during a U.S. Department of Energy-sponsored project that addressed thermal hydraulics, reactor physics, fuel manufacturing, and fuel performance characterization. Using this fuel, it is shown that power density uprates up to 150% can be achieved in PWRs while maintaining or improving the safety margins. If this is applied to future reactors, significant economic advantages can be realized. Even when the power level is maintained close to what it is in existing power reactors, the annular fuel will greatly enhance safety and facilitate higher burnup of the fuel.