We have constructed a new theoretical model of compositional fluctuation in InGaN quantum wells (QWs) to investigate the effects of the fluctuation on emission properties and laser performance. The temperature dependence of the photoluminescence decay time for InGaN-QW structures is fully analysed by the model in terms of a band-edge state modified by the compositional variation. This model is then used to predict performance for InGaN-QW lasers. We found that the differential gain and the critical carrier density of the inversion distribution are strongly correlated with the fluctuation but in opposite ways and that the utilisation of the fluctuation is beneficial for a specific laser operation condition. Furthermore, laser diodes with different degrees of fluctuation in the active layers have been fabricated and the predicted dependence of differential gain on the fluctuation has been verified experimentally.