An analytical study on the viscous dissipation effect on entropy generation in laminar fully developed forced convection of water-alumina nanofluid in circular microchannels is reported. In the first-law analysis, closed form solutions of the temperature distributions in the radial direction for the models with and without viscous dissipation term in the energy equation are obtained. The results show that the heat transfer coefficient decreases with nanoparticle volume fraction largely in the laminar regime of nanofluid flow in microchannel when the viscous dissipation effect is taken into account. In the second-law analysis, the two models are compared by analyzing their relative deviations in entropy generation for different Reynolds number and nanoparticle volume fraction. When the viscous dissipation is taken into account, the temperature distribution is prominently affected and consequently the entropy generation ascribable to the heat transfer irreversibility is significantly increased. The increase of entropy generation induced by the increase of nanoparticle volume fraction is attributed to the increase of both the thermal conductivity and viscosity of nanofluid which causes augmentation in the heat transfer and fluid friction irreversibilities, respectively. By incorporating the viscous dissipation effect, both thermal performance and exergetic effectiveness for forced convection of nanofluid in microchannels dwindle with nanoparticle volume fraction, contrary to the widespread conjecture that nanofluids possess advantage over pure fluid associated with higher overall effectiveness from the aspects of first-law and second-law of thermodynamics. (C) 2012 Elsevier Ltd. All rights reserved.