In this paper the effect of constant external heat transfer on the performance of a two fluid balanced parallel flow microchannel heat exchanger is analyzed. A mathematical model is developed for predicting the effectiveness-NTU relationship of both the fluids. Theoretical analysis is presented for various cases of external heating over a wide range of NTU. External heating improved the effectiveness of the cold fluid but degraded the effectiveness of the hot fluid while external cooling produced the opposite changes in the effectiveness of the coolants. The extent of improvement or degradation depended on the level of external heating/cooling. A term referred to as performance factor is used to assess the degree of improvement or degradation of the effectiveness of the individual fluids. Experiments conducted on two microchannel heat exchangers by subjecting the coolants to 5% and 10% external heating have been presented in this paper. The experimental value of NTU varied from 0.42 to 1.76. Good agreement is observed between the theoretical predictions and experimental results. The results presented in this paper are nondimensional; thus they can be utilized irrespective of the dimensions of parallel flow microchannel heat exchangers as well as the type of coolant.