A method for controlling engine idle in a vehicle having a motor connected to the engine through a power transfer unit is provide. Upon receiving a neutral command, the engine torque is commanded to approximately zero. The motor torque is adjusted to maintain an approximately constant engine speed as the engine torque is reduced. The torque from the engine transferred to the vehicle wheels is at or near zero. When the torque at the vehicle wheels is non-zero, a second motor is used to cancel the torque output from the engine so the torque at vehicle wheels is zero. When the engine torque has reached approximately zero, or when a predetermined amount of time has past, both motors are shutdown, and all of the remaining engine torque is transferred to the first motor through the power transfer unit.