Safety is the first priority in lithium ion (Li-ion) battery applications. A large portion of electrical and thermal hazards caused by Li-ion battery is associated with short circuit. In this paper, both external and internal short circuit tests are conducted. Li-ion batteries and battery packs of different capacities are used. The results indicate that external short circuit is worse for smaller size batteries due to their higher internal resistances, and this type of short can be well managed by assembling fuses. In internal short circuit tests, higher chance of failure is found on larger capacity batteries. A modified electrochemical–thermal model is proposed, which incorporates an additional heat source from nail site and proves to be successful in depicting temperature changes in batteries. Specifically, the model is able to estimate the occurrence and approximate start time of thermal runaway. Furthermore, the effectiveness of a hydrogel based thermal management system in suppressing thermal abuse and preventing thermal runaway propagation is verified through the external and internal short tests on batteries and battery packs.