Non-uniform current distribution in polymer electrolyte membrane (PEM) fuel cells results in local over-heating, accelerated ageing, and lower power output than expected. This issue is quite critical when a fuel cell experiences water flooding. In this study, the performance of a PEM fuel cell is investigated under cathode flooding conditions. A two-dimensional approach is proposed for a single PEM fuel cell based on conservation laws and electrochemical equations to provide useful insight into water transport mechanisms and their effect on the cell performance. The model results show that inlet stoichiometry and humidification, and cell operating pressure are important factors affecting cell performance and two-phase transport characteristics. Numerical simulations have revealed that the liquid saturation in the cathode gas distribution layer (GDL) could be as high as 20%. The presence of liquid water in the GDL decreases oxygen transport and surface coverage of active catalyst, which in turn degrades the cell performance. The thermodynamic quality in the cathode flow channel is found to be greater than 99.7%, indicating that liquid water in the cathode gas channel exists in very small amounts and does not interfere with the gas phase transport. A detailed analysis of the operating conditions shows that cell performance should be optimized based on the maximum average current density achieved and the magnitude of its dispersion from its mean value. Copyright © 2010 John Wiley & Sons, Ltd.