Minimizing spindle thermal deformation is of key importance for reaching high machining accuracy. In this study, the thermal stability of a spindle with water-lubricated hydrostatic bearings was investigated via simulation with experimental data for defining boundary conditions for the simulations. The simulation study was divided into two separate tasks. In the first stage, the temperature distribution in the water flowing through spindle bearings was determined using commercial FEM flow simulation software. The experimentally obtained temperatures of lubricant and spindle surfaces were used as boundary conditions for a finite volume problem that introduced the temperature distribution of the spindle body and water flowing around the spindle. Then, a thermal analysis of the spindle was performed using the temperature field obtained in the first stage to investigate thermal deformation of the spindle. Temperatures at specific parts of the spindle derived from the temperature distribution were used as boundary conditions for analysis in the second stage. The results were used to investigate the influence of spindle thermal deformation on the positioning accuracy of the end surface of the spindle rotor. The pattern of gap variations in journal and thrust bearings due to the thermal deformation of bearing surfaces was established. The thermal stability of a spindle under the influence of an external temperature field was evaluated using the bearing load capacity and stiffness as indicators. The bearing load capacity and stiffness were defined based on the pressure distribution on the bearing surfaces with consideration of the non-uniformity of the bearing gap due to thermal deformation. A separate study was conducted to investigate the effect of changing viscosity of increasing the temperature of lubricating fluid on bearing performance. Furthermore, the resulting displacement of the spindle rotor end, which directly affects machining error, is also discussed.