The influence of axial heat conduction and internal heat generation (viscous dissipation) on the effectiveness of a counter flow microchannel heat exchanger is analyzed in this paper. The ends of the wall separating the hot and cold fluid are kept isothermal, i.e. non-adiabatic, thereby leading to thermal interaction between the heat exchanger and its surroundings. A thermal model of this particular heat exchanger consists of three one dimensional governing equations. This system of equations is solved using finite difference method. The hot and cold fluid effectiveness is found to depend on parameters such as NTU, axial heat conduction parameter, end wall temperatures and internal heat generation parameter. Increase in axial heat conduction parameter of a heat exchanger subjected internal heat generation can either increase or decrease the effectiveness of the fluids depending on the temperature of the end walls. The effect of internal heat generation in a counter flow microchannel heat exchanger with axial heat conduction is to always degrade and improve the effectiveness of the hot and cold fluid, respectively.