Large Eddy Simulation (LES) turbulence and multiphase Volume of Fluid (VOF) model are employed to predict the spatial and temporal characteristics of the turbulent flow structures near micro-hydrokinetic turbine operating in the proximity of a free surface. The turbine power performance and the free surface dynamics, and its interaction with the turbine are characterized by examining the results of both single-phase and multiphase flow simulations. Simulations are conducted at the turbine’s best efficiency point at a tip speed ratio of 1.86 with the rotation rate of 150 rpm and the free stream water velocity of 2.25 m/s. The multiphase flow simulation is carried out at Froude number of 1.06. The results indicate slight interaction between the deformed free surface and the turbine wake structures. Acceleration in the flow velocity is observed near the free surface due to the physical confinement. The results indicate that turbine power generation is reduced by about 2.0%, and the thrust coefficient is reduced by 1.60%. It is demonstrated that the turbine performance at this Froude number is hardly influenced by the presence of the free surface.