A new concept is proposed for the highly effective cooling of a polymer electrolyte membrane fuel cell (PEMFC) using the downward annular two-phase flow of high-speed air and subcooled water in a small vertical tube. Numerical simulations based on the two-phase flow boundary layer model are performed to investigate the heat and mass transfer characteristics of the annular flow with uniform heat flux at the tube wall. The coupled heat transfer due to evaporation and convection and the effects of various relevant parameters on the temperature profiles on the wall and of the gas core are studied. It is shown that annular two-phase flow of air and subcooled water in a small vertical tube can provide high heat transfer rate through the evaporation of the water film, while still maintaining low wall temperature. This cooling method is found to be encouraging for use in the highly effective cooling of PEMFC.