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The effects of the Indonesian throughflow (ITF) are studied in a reduced gravity, primitive equation, sigma coordinate model. The model domain includes the flow south of Australia. Unlike previous studies, this model includes a completely interactive upper ocean hydrology and the surface heat fluxes are provided by coupling the ocean general circulation model (GCM) to an advective atmospheric mixed layer model. It is shown that model simulation of the ITF on seasonal and interannual (1980–1995) timescales is in very good agreement with available estimates and other model studies. Effects of increased mixing in the Indonesian seas are also presented. There is an El Niño-Southern Oscillation (ENSO) related signal in the ITF, but the correlation with the Southern Oscillation Index (SOI) is only −0.31. When the winds over the Indian Ocean are held to climatology, this correlation jumps to −0.65 indicating that the non-ENSO signal in the ITF is caused by the downstream winds. On interannual timescales the ITF can be explained in terms of sea level differences between the western Pacific and eastern Indian Oceans when appropriate representative locations are chosen as demonstrated in both model and TOPEX data. It is shown that the main climatological effect of the ITF is to warm the Indian Ocean and to cool the Pacific. Spreading of the thermocline due to ITF in the Indian Ocean leads to reduced cooling of SST due to upwelling along the coasts of Java, western Australia, and Somalia. The seasonal cycle of sea surface temperature (SST) are shifted in the eastern equatorial Pacific and in the Leeuwin Current region and large-scale dynamic effects of the ITF are also seen. Over the period 1980–1995, the effect of the ITF has interannual variability. While the main ENSO indices, NINO3 and NINO4, are almost identical with and without the ITF, the total SSTs show significant ENSO dependence. SSTs in the central Indian Ocean linked previously to rainfall deficit in the western Australian winter may be dependent on the ENSO related variability of the ITF.