The current work focuses on the pressure drop, heat transfer and stability in two phase flow in microchannels with hydraulic diameter of less than one hundred microns. Experiments were conducted in smooth microchannels of hydraulic diameter of 45, 65 μm, and a rough microchannel of hydraulic diameter of 70 μm, with deionised water as the working fluid. The local saturation pressure and temperature vary substantially over the length of the channel. In order to correctly predict the local saturation temperature and subsequently the heat transfer characteristics, numerical techniques have been used in conjunction with the conventional two phase pressure drop models. The Lockhart-Martinelli (liquid-laminar, vapour-laminar) model is found to predict the two phase pressure drop data within 20%. The instability in two phase flow is quantified; it is found that microchannels of smaller hydraulic diameter have lesser instabilities as compared to their larger counterparts. The experiments also suggest that surface characteristics strongly affect flow stability in the two phase flow regime. The effect of hydraulic diameter and surface characteristics on the flow characteristics and stability in two phase flow is seldom reported, and is of considerable practical relevance. © 2009 Elsevier Inc. All rights reserved.