The fundamental small-signal modeling of lithium-ion (Li-ion) batteries and a parameter evaluation approach are investigated in this study to describe the dynamic behaviors of small signals accurately. The main contributions of the study are as follows. 1) The operational principle of the small signals of Li-ion batteries is revealed to prove that the sinusoidal voltage response of a Li-ion battery is a result of a sinusoidal current stimulation of an AC small signals. 2) Three small-signal measurement conditions, namely stability, causality, and linearity, are proved mathematically proven to ensure the validity of the frequency response of the experimental data. 3) Based on the internal structure and electrochemical operational mechanism of the battery, an AC small-signal model is established to depict its dynamic behaviors. 4) A classical least-squares curve fitting for experimental data, referred as Levy's method, are introduced and developed to identify small-signal model parameters. Experimental and simulation results show that the measured frequency response data fit well within reading accuracy of the simulated results; moreover, the small-signal parameters identified by Levy's method are remarkably close to the measured parameters. Although the fundamental and parameter evaluation approaches are discussed for Li-ion batteries, they are expected to be applicable for other batteries.