Surface roughness is known to have significant effect on turbulent flow depending on the magnitude of the roughness. Also, a pipe is considered hydrodynamically smooth (for a given surface roughness) below certain value of Re. As the flow becomes laminar, there is little known about the surface roughness effect, particularly for small channel diameters (micro-channels). Data available to date from the literature, on micro-channels, indicate that the friction-Re relationship deviates from the known Moody Chart, for laminar flow. These differences are attributed, sometimes, to the surface roughness. Micro-channels are currently under consideration as a candidate for Stirling Engine Regenerators. In this paper, the effect of surface roughness on the flow and heat transfer characteristics has been studied using the CFD-ACE commercial software. A CFD model is created with small tooth like structures on the inner walls of a pipe with equal height and spacing between them. CFD analysis is done for different roughness values and the variation of heat transfer and fluid characteristics with the increase in roughness is studied. The study is done on a pipe with a hydraulic diameter of 0.62 mm by considering it first as smooth and then with average roughness values of 1.0 and 2.2 microns. The results were compared with the analytical solution (for smooth pipes) and experimental results available from the literature.