Measurements with the Canadian Convair-580 aircraft over a large polynya in the Beaufort Sea provided detailed observations of turbulent heat fluxes and cloud properties during the First ISCCP Regional Experiment (FIRE) Arctic Cloud Experiment (FIRE.ACE). On 25 April 1998, cold air advection resulted in strong surface heat fluxes over the polynya and in the formation, despite the low temperatures (-19¿C), of mixed-phase clouds at the top of the Arctic boundary layer. The Canadian Mesoscale Compressible Community model (MC2) has been used to simulate this case at 2-km resolution, with a detailed treatment of surface processes and the actual observed structure of the large polynya. The evolution of the Arctic boundary layer, together with most of the cloud features, compares favorably with in situ aircraft observations. The sensitivity of the Arctic boundary layer clouds to various surface and cloud microphysical processes has been examined. Aircraft observations and model simulations confirm that the generation of clouds associated with polynyas depends critically on the air-sea temperature contrast controlling the magnitude of the heat fluxes. The crucial role of leads and polynyas for cloud formation is highlighted in a sensitivity run with surface evaporation turned off. Though it does not affect significantly the structure of the Arctic boundary layer, evaporation from the open waters provides the small moisture excess needed to trigger the generation of low-level clouds when cold air advects over the polynya. Sensitivity runs with two cloud microphysical schemes revealed the importance of the turbulent transport of moisture in producing supercooled liquid clouds in this case. It is also found that these unusual boundary layer clouds particular to the Arctic conditions can be reasonably well reproduced with a cloud microphysical scheme of intermediate complexity that accounts for mixed phases.