This paper presents a novel approach to autonomous navigation for small UAVs, in which the vehicle dynamic model (VDM) serves as the main process model within the navigation filter. The proposed method significantly increases the accuracy and reliability of autonomous navigation, especially for small UAVs with low-cost IMUs on-board. This is achieved with no extra sensor added to the conventional INS/GNSS setup. This improvement is of special interest in case of GNSS outages, where inertial coasting drifts very quickly. In the proposed architecture, the solution to VDM equations provides the estimate of position, velocity, and attitude, which is updated within the navigation filter based on available observations, such as IMU data or GNSS measurements. The VDM is also fed with the control input to the UAV, which is available within the control/autopilot system. The filter is capable of estimating wind velocity and dynamic model parameters, in addition to navigation states and IMU sensor errors. Monte Carlo simulations reveal major improvements in navigation accuracy compared to conventional INS/GNSS navigation system during the autonomous phase, when satellite signals are not available due to physical obstruction or electromagnetic interference for example. In case of GNSS outages of a few minutes, position and attitude accuracy experiences improvements of orders of magnitude compared to inertial coasting. It means that during such scenario, the position-velocity-attitude (PVA) determination is sufficiently accurate to navigate the UAV to a home position without any signal that depends on vehicle environment.