Experimental and numerical simulation were carried out on vertically upward air-water two-phase flow in the rod bundle with grid spacer. The related numerical simulation has been performed by using the Computational Fluid Dynamics code-CFX4.2, in which lateral interfacial effects based on a two-fluid model are accounted for. This model has been used to evaluate the velocity fields of gas and liquid phases, as well as phase distribution between elements in rod bundle by simulating 1/4 zone of experimental model, and mixing vanes of spacer in this area. Furthermore, this model has been used to predict the effects of spacer on flow and pressure drop along the rod bundle.The calculation results show that the mixing vane has significant influence on axial and lateral velocity. In order to obtain some experimental data to verify the numerical solutions, a series of tests, using a specially designed 3×3 rod bundle test section with AFA-2G structure spacer have been performed. An optical probe was used to measure local void fractions. At the same time, the pressure loss has been measured. A comparison between the calculated void profile and pressure loss and the measured results shows that the predicted void profiles are consistent at low gas apparent velocity. This research shows that the code CFX4.2 can be used to describe the 3-D air-water two-phase flow in the rod bundle channel with grid spacer.