In this thesis, Taylor flow (also called slug flow ) of nanofluid (?-Al2O3/water,1%.vol) in rectangular microchannels with high aspect ratio was investigated using FLUENT software. 4 types of different inlet configurations were considered to investigate hydrodynamics and heat transfer. In first geometry air was entered vertically and the nanoflid was entered horizontally. In second geometry nanofluid was entered vertically and air was entered horizontally. In third geometry air and nanofluid both were entered vertically and in fourth geometry air and nanofluid were entered in 120° angle. The results are presented as hydrodynamic results and heat transfer results. In hydrodynamic results, slug and bubble lengths, liquid film properties, pressure drop and gas void fraction were studied and the results were compared with previous correlations presented by other researchers. There are very high deviations between the results based on the previous correlations and the presented results in liquid film thickness, slug and bubble lengths and gas void fraction. Results show that pressure drop is constant across a unit cell in microchannel. In this thesis two theoretical equations were presented to predict gas void fraction and period of Taylor flow. Proposed equations predict measurements accurate to 3% for gas void fraction and 4% for slug period. Investigation of velocity vectors specified that two vortices exist in front of bubbles and in the tail. The vortex which exist in bubble tail results in an inverse flow. In heat transfer results, the Nusselt number in a unit cell and the local Nusselt number in all geometries were investigated and compared. Investigation of temperature contour in a unit cell shows that the hottest point on the wall is where the back vortex exists. Also the lowest Nusselt number in a unit cell is observed at the same point. First geometry showed the greatest Nusselt number and the Nusselt number has an inverse relationship with unit cell length. Boundary adaption method was used to simulate liquid film which is the fast method among the other methods used by previous researchers and specified that the pressure drop has an 80% deviation without considering liquid film in simulations. Use of nanofluid instead of water as the liquid phase in Taylor flow could enhance heat transfer coefficient. Nanofluid of ?-Al2O3/water,1%.vol was used and simulated as a homogenous liquid in this thesis. The influence of using nanofluid was studied and determined a 10% increase in Nusselt number compared to water. The hydrodynamic and thermal properties were considered temperature dependant in present simulation while previous researchers considered constant properties in their simulations. Keywords: Taylor flow (slug flow), nanofluid, microchannel, CFD