The formation-distribution of condensed water in diffusion medium of proton exchange membrane fuel cells, and its tendency to reduce the local effective mass diffusivity and to influence cell performance, are studied. First the local effective mass diffusivity of a fibrous diffusion medium is determined as a function of the local porosity and local water saturation, using the network model for species diffusion. Then using this along with the hydrodynamics of capillary, two-phase flow in hydrophobic porous media, the water formation rate (hydrogen-oxygen reaction), and condensation kinetics, the one-dimensional distribution of water saturation is determined and roles of fiber diameter, porosity, and capillary pressure on cell performance are explored. The results point to a two-layer medium (similar to the added conventional microlayer) which is then analyzed for optimum performance. (C) 2003 Elsevier Ltd. All rights reserved.