A two-phase polymer electrolyte membrane fuel cell model has been developed to investigate transport of species in a gas diffusion layer taking into account effects of liquid water saturation. A set of governing equations for mass, momentum, species concentration involving oxygen, hydrogen, water vapour and liquid water together with electrochemical reaction equations have been solved under computational fluid dynamics technique. The effects of presence of liquid water on the effective diffusivity of species have been investigated. A thorough comparison study of liquid water saturation model using power law with various exponential factors and a percolation based model has been carried out. The simulation results show that the power law model with exponential factor of 2 provides a good representation of species diffusivity and produces much closer agreement with experimental cell voltage, while the percolation based model produces overprediction of cell voltage. The effects of isotropic and anisotropic permeability of gas diffusion layer have also been studied and the simulated results show that the high isotropic permeability or a combination of high in-plane and low through-plane permeability results in higher performance of a polymer electrolyte membrane fuel cell. The fuel cell performance significantly deteriorates with low in-plane and high through-plane permeability of gas diffusion layer. (C) 2012 Elsevier Ltd. All rights reserved.