Dynamic braking is the use of an electric traction motor as a generator when slowing a vehicle such as an electric or diesel–electric locomotive. It is termed "rheostatic" if the generated electrical power is dissipated as heat in brake grid resistors, and "regenerative" if the power is returned to the supply line. Dynamic braking reduces wear on friction-based braking components, and regeneration lowers net energy consumption. Dynamic braking may also be used on railcars with multiple units, light rail vehicles, electric trams, trolleybuses, and electric and hybrid electric automobiles.

Converting electrical energy to the mechanical energy of a rotating shaft (electric motor) is the inverse of converting the mechanical energy of a rotating shaft to electrical energy (electric generator). Both are accomplished through the interactions of armature windings with a (relatively) moving external magnetic field, with the armature connected to an electrical circuit with either a power supply (motor) or power receptor (generator). Since the role of the electrical/mechanical energy converting device is determined by which interface (mechanical or electrical) provides or receives energy, the same device can fulfill the role of either a motor or a generator. In dynamic braking, the traction motor is switched into the role of a generator by switching from a supply circuit to a receptor circuit while applying electric current to the field coils that generate the magnetic field (excitation).

The amount of resistance applied to the rotating shaft (braking power) equals the rate of electrical power generation plus some efficiency loss. That is in turn proportional to the strength of the magnetic field, controlled by the current in the field coils, and the rate at which the armature and magnetic field rotate against each other, determined by the rotation of the wheels and the ratio of power shaft to wheel rotation. The amount of braking power is controlled by varying the strength of the magnetic field through the amount of current in the field coils. As the rate of electrical power generation, and conversely braking power, are proportional to the rate at which the power shaft is spinning, a stronger magnetic field is required to maintain braking power as speed decreases and there is a lower limit at which dynamic braking can be effective depending on the current available for application to the field coils.

The two main methods of managing the electricity generated during dynamic braking are rheostatic braking and regenerative braking, as described below.

For permanent magnet motors, dynamic braking is easily achieved by shorting the motor terminals, thus bringing the motor to a fast abrupt stop. This method, however, dissipates all the energy as heat in the motor itself, and so cannot be used in anything other than low-power intermittent applications due to cooling limitations, such as in cordless power tools. It is not suitable for traction applications.

The electrical energy produced by the motors is dissipated as heat by a bank of onboard resistors, referred to as the braking grid. Large cooling fans are necessary to protect the resistors from damage. Modern systems have thermal monitoring, so that if the temperature of the bank becomes excessive it will be switched off, and the braking will revert to being by friction only.

In electrified systems the process of regenerative braking is employed whereby the current produced during braking is fed back into the power supply system for use by other traction units, instead of being wasted as heat. It is normal practice to incorporate both regenerative and rheostatic braking in electrified systems. If the power supply system is not "receptive", i.e. incapable of absorbing the current, the system will default to rheostatic mode in order to provide the braking effect.

Yard locomotives with onboard energy storage systems which allow the recovery of some of the energy which would otherwise be wasted as heat are now available. The Green Goat model, for example, is being used by Canadian Pacific Railway, BNSF Railway, Kansas City Southern Railway and Union Pacific Railroad.