In nuclear reactor fuel assemblies, spacer grids are used in the rod bundles to provide mechanical support to the rods and to reduce flow-induced vibration. These are known to play a role in the local heat transfer as well as in the onset of the critical heat flux (CHF) condition. While considerable literature exists on these issues, a detailed study of the flow situation has not yet been reported. The objective of the present study was to investigate the effect of spacer grids on flow and heat transfer in rod bundles. To this end, computational fluid dynamics (CFD) based simulations have been carried out using the Eulerian-Lagrangian framework for calculating single-phase, vapour-only flow as well as the droplet-laden flow through a typical bundle geometry. The results show that the single-phase convective heat transfer coefficient increases locally by 30-40%, leading to a consequent decrease in the wall temperature, in the spacer grid region. Droplet trajectory calculations show that the droplet deposition rate is increased considerably in the spacer grid region and that about 15% of the droplet flux is deposited in the spacer grid. Estimates of the size of the re-entrained droplets have shown that these are much smaller than those of the undeposited droplets present in pre-CHF flow. It is hypothesized here that these smaller re-entrained droplets may cause enhancement of the evaporative heat transfer coefficient between the droplets and may help in bringing down the surface temperature further downstream of the spacer, which has been observed experimentally. © 2013 Elsevier B.V. All rights reserved.