Abstract: The performance of a typical two-phase underwater ramjet and its inner flowfield were investigated by the application of computational fluid dynamics method and the effect of cavitation was taken into account. The research shows that when the engine is cruising at a relatively high speed, cavitation will occur at the inlet of the engine and cause serious total pressure loss, which leads to flow separation at the middle of the diffuser and serious drop in engine performance. With the increasing of mass flow rate of the injected air, the mixing chamber pressure increases noticeably and the cavitation disappears. Moreover, the thrust and specific impulse can be promoted by increasing the temperature, but the overall efficiency will decrease dramatically.