An ice-ocean model has been used to investigate the effect of vertical mixing on the circulation of the Atlantic Water layer (AL) in the Arctic Ocean. The motivation of this study comes from the disparate AL circulations in the various models that comprise the Arctic Ocean Model Intercomparison Project (AOMIP). It is found that varying vertical mixing significantly changes the ocean's stratification by altering the vertical distribution of salinity and hence the structure of the arctic halocline. In the Eurasian Basin, the changes in ocean stratification tend to change the strength and depth of the cyclonic AL circulation, but not the basic circulation pattern. In the Canada Basin, however, the changes in ocean stratification are sufficient to alter the direction of the AL circulation. Excessively strong vertical mixing drastically weakens the ocean stratification, leading to an anticyclonic circulation at all depths, including both the AL and the upper layer that consists of the surface mixed layer and the halocline. Overly weak vertical mixing makes the ocean unrealistically stratified, with a fresher and thinner upper layer than observations. This leads to an overly strong anticyclonic circulation in the upper layer and an overly shallow depth at which the underlying cyclonic circulation occurs. By allowing intermediate vertical mixing, the model does not significantly drift away from reality and is in a rather good agreement with observations of the vertical distribution of salinity throughout the Arctic Ocean. This realistic ocean stratification leads to a realistic cyclonic AL circulation in the Canada Basin. In order for arctic ice-ocean models to obtain realistic cyclonic AL circulation in the Canada Basin, it is essential to generate an upward concave-shaped halocline across the basin at certain depths, consistent with observations.