To enhance heat transfer characteristics of water, micro-encapsulated octadecane of about $10{mu}m$ diameter was added to water. Viscosity of the slurry was measured by using a capillary tube viscometer. The measured viscosity decreased as the temperature of the slurry increased, and it increased as the fraction of the capsules in the slurry increased. Thermal characteristics of the octadecane were studied by using a differential scanning calorimeter. The melting temperature and the melting energy of the octadecane were found to be $28.6^{circ}$ and 34.4kcal/kg, respectively. The convective heat transfer characteristics of the slurry were investigated in a flow loop with a constant heat flux test section. Friction factor of the slurry flow was found to be similar to the expected curve by Petukhov. The Nusselt number of the slurry flow was highest when the octadecane melted. Effective thermal capacity of the 14.2% slurry was found to have 1.67 times of the thermal capacity of water.