Droplet-based microfluidics refers to the production and utilization of micrometer-sized droplets. This technology has found widespread applications in drug delivery, biotechnology, disease prevention, chemical analysis, cell research, and functional material synthesis. Cooling of high heat flux electronic systems and hot spots is another application of the droplet flow which is focused by the current work. In this paper, formation and hydrothermal performance of oil droplets in water flow in a T-junction microchannel is studied by a 3D numerical simulation. Effects of different parameters such as surface tension, wettability and heat flux on the droplet size, heat transfer rate and pressure drop are investigated. It is observed that the shear between the discrete and continuous phases results in recirculating zones in both phases which contribute to improved mixing and heat transfer rates. Liquid film thickness adjacent to the heated surface and the droplet velocity are two other factors that positively affect the heat transfer. Decreasing the surface tension is shown to enhance the heat transfer rate. Moreover, an optimum value is found for the contact angle as 135° at which a 23 % heat transfer enhancement is achieved. Results also indicate that droplet size decreases with increase of contact angle while it slightly increases with increase of the surface tension and negligibly varies with the applied heat flux.