The flow inside an Abrasive waterjet (AWJ) nozzle is extremely complex due to the interaction of the high speed water jet with the entrained air and the abrasive particles. The resulting three-phase flow inside the nozzle is not understood well primarily due to the difficulty in making measurements (or even viewing) inside the small nozzle. The nozzle geometry is typically optimized by trial and error by looking at the characteristics of the abraded workpiece. Three dimensional computations could be the ideal candidate to make better designs for the nozzle. Compressible multiphase models can be used to simulate many of the flow features in the nozzle such as the hydraulic flip caused by cavitation just aft of the orifice, the mixing and spreading of the water jet, the acceleration of abrasive particles on contacting the water jet and the collisions of the abrasive particles with the walls. In addition the collision statistics can be used to estimate erosion rates of the nozzle material. The computational multi-fluid dynamics software TransAT is used in this study. Results from CFD simulations of a complete nozzle/cutting-head is presented and compared to experimental data in terms of predicted particle exit velocity for different sized particles for different operating pressures and abrasive flow rates. The collision statistics, accumulated during the simulation, is used to estimate the location of significant wear. The potential of using CFD to optimize nozzle design is discussed.