This paper presents the simulation of the flow in a 1.5 stage low-speed axial turbine with shrouded rotor blades and focuses on the interaction of the labyrinth seal leakage flow with the main flow. The presented results were obtained using the Navier-Stokes code ITSM3D developed at University of Stuttgart. A comparison of the computational results with experimental data of this test case gained at Ruhr-Universita¨t Bochum verifies that the flow solver is capable of reproducing the leakage flow effects to a sufficient extent. The computational results are used to examine the influence of the leakage flow on the flow field of the turbine. By varying the clearance height of the labyrinth in the simulations, the impact of the re-entering leakage flow on the main flow is studied. As demonstrated in this paper, leakage flow not only introduces mixing losses but can also dominate the secondary flow and induce severe losses. In agreement with the experimental data the computational results show that at realistic clearance heights the leakage flow gives rise to negative incidence over a considerable part of the downstream stator which causes the flow to separate.