A 2D axisymmetric plasma model for micro-electrical discharge machining (μEDM) is developed, and the discharge phenomenon is discussed in this paper. Variations in different plasma properties, such as density, temperature, and collisions of the electrons bombarding the anode and cathode electrodes, were simulated to comprehensively explain the discharge process. The said properties of the plasma channel will be extremely helpful in determining the heat flux available at the tool and workpiece of μEDM. The governing equations of electrostatics, drift-diffusion, and heavy species transport were coupled together and solved simultaneously for computing the properties of the plasma channel in water vapor. The simulation describes the movement of electrons and ions in the inter-electrode gap during the discharge initiation under the applied electric field. The anode spot responsible for the material removal was formed much earlier compared to the cathode spot formed at the tool. Both the temperature and the density of the electrons were observed to be higher near the workpiece, compared to the tool electrode. The temperature of the electrons and the current density of the plasma obtained during the simulation will be useful to determine the heat flux responsible for the material removal. The non-equilibrium nature of the plasma sheath is responsible for the steep changes in the collisional power loss and higher capacitive power deposition near the workpiece electrode.