The commercial viability of the steam-assisted gravity-drainage (SAGD) process is affected negatively by several undesirable reservoir features, such as pronounced heterogeneity, low vertical permeability, thick and areally extensive shale barriers, and steam thief zones. The efficiency of SAGD projects is also affected by the presence of higher water saturation in the target zone. Although the presence of small mobile-water saturation is not considered harmful, reservoirs with high water saturation may be poorly suited for the SAGD process. Nonetheless, SAGD remains the only practical technology for in-situ extraction of oil from oil-sand reservoirs, even when mobile water is present. This raises the question of how much mobile water is prohibitive. To investigate the effect of water saturation on SAGD performance, high-pressure physical-model experiments were carried out. Different levels of water saturations were established in the model by modifying the packing and saturating techniques. SAGD experiments were carried out by injecting superheated steam at controlled rates and producing the oil from the production well at constant pressure. The injection rate was selected to keep the pressure difference between the injector and the producer at a low level. The oil-production behavior was analyzed to evaluate the effect of water saturation on the thermal efficiency of the process. On the basis of the results of low- (immobile) and high- (mobile) water-saturation experiments, it was observed that the oil-recovery factor dropped by 6.6% when the initial water saturation was increased from 14.7% to 31.8%.