A novel Modified Rachford-Rice equation is developed for three-phase equilibrium calculations in hydrocarbon-water systems, based on the free-water assumption, i.e., the water-rich liquid phase consists of pure water only. In the inner loop of the flash algorithm, the three-phase problem (consisting in a system of two non-linear equations) is replaced by a pseudo-two-phase problem (consisting in a non-linear equation). Unlike previous formulations, the new Modified Rachford-Rice function is guaranteed to monotonically decrease between two adjacent asymptotes. The negative flash concept is used, and a search window is proposed for the vapor fraction. The new free-water flash method proved to be robust, and excellent agreement between full three-phase flash and pseudo-two-phase free-water flash was obtained for various test problems. The proposed method is very useful in compositional reservoir simulation of certain oil recovery methods and in process simulation. (C) 2010 Elsevier B.V. All rights reserved.