Prediction of leakage flow and windage heating for labyrinth seals with honeycomb lands is critical in understanding gas turbine engine system performance and predicting its component life. There are several labyrinth seal configurations in use in gas turbines, and for each configuration, there are many geometric factors that can impact a seal's leakage and windage characteristics. One of the factors which has not been thoroughly investigated in previously published work is the presence of rub-grooves in the honeycomb land and its impact on seal performance. This paper describes the development of a numerical methodology aimed at studying this effect. Specifically, a three-dimensional (3D) computational fluid dynamics (CFD) model is developed utilizing commercial finite volume-based software incorporating the renormalization group (RNG) k-ε turbulence model. Using this model, a broad parametric study is conducted by varying honeycomb cell size and radial clearance for a four-tooth straight-through labyrinth seal with and without rub-grooves. The results show good agreement with available experimental data. They further indicate that presence of rub-grooves increases seal leakage and decreases windage heating. The absolute levels depend on the clearance and honeycomb cell size.