In this paper the thermal performance of balanced parallel flow microchannel heat exchangers subjected to external heat transfer and internal heat generation have been numerically analyzed. The governing equations were numerically solved to obtain the axial temperatures of the fluids. The effectiveness of each fluid was determined using the inlet and outlet temperatures obtained from the numerical analysis. Moreover, the heat transferred between the individual fluids and the ambient as well as that between the fluids were numerically determined. The effectiveness depended on NTU, ambient temperature, thermal resistance between the ambient and the fluids, and the internal heat generation. When NTU is zero, the effectiveness depends only on the internally generated heat. At a particular ambient temperature and NTU the effectiveness of the hot and cold fluids degraded and improved, respectively, with increase in the internally generated heat. On the other hand with increase in ambient temperature the effectiveness of the hot and cold fluids decreased and increased, respectively, for a specific amount of heat generation. The model developed in this paper has been validated using existing models which consider the individual effect of external heat transfer and internal heat generation on the performance of parallel flow microchannel heat exchangers.