A CFD study of the hub gap effect on podded propulsor performance was presented. The sliding mesh model was employed to simulate the unsteady interaction between propeller blades and the pod housing. To investigate the effect of hub gap width on the hydrodynamic forces acting upon various parts of the propulsor, several cases with different gap widths were calculated. The numerical results indicate that the hub gap has little influence on the hydrodynamic forces of the propulsor unit and propeller blades; the pressure on the downstream face of the hub acts as a thrust, of which the magnitude is appoximately 2%~3% of the blade thrust; and when the distance between the downstream face of the hub and the propeller trailing edge is kept constant, the hub gap pressure decreases with increasing hub gap width.