Entropy generation and transfer in microchannel flows were calculated and analyzed for different thermal boundary conditions. Due to the small flow cross-sectional area, fluid temperature variation in the lateral direction was neglected and a laterally lumped model was developed and used in the first- and second-law analyses. Since the Peclet numbers of microchannel flows are typically low, heat conduction in the flow direction was taken into consideration. Computed fluid temperature and entropy generation rate were cast into dimensionless forms, thus can be applied to different fluids and channels of different sizes and configurations. Local entropy generation rate was found to be only dependent upon the temperature gradient in the flow direction. The optimization results of microchannel flows exchanging heat with their surroundings indicate the optimal fluid temperature distribution is a linear one. Copyright (C) 2004 John Wiley Sons, Ltd.