The rotor blade tip leakage fiow and associated formation of the tip leakage vortex and interaction of the tip leakage vortex with the shockwave, particularly in the case of a transonic compressor rotor have significant impact on the compressor performance and its stability. Air injection upstream of the compressor rotor tip has been shown to improve compressor performance and enhance its stability. The air required for rotor blade tip injection is generally taken from the later stages of the compressor thus causing penalty on the gas turbine performance. In this study, effects of water injection at the rotor tip with and without the wet compression on the compressor performance and its stability have been examined. To achieve the stated objectives, the well tested transonic compressor rotor stage, NASA rotor stage 37, has been numerically simulated. The evaluation of results on various performance parameters, such as total pressure ratio, inlet fiow capacity, and adiabatic efficiency combined with contours of total pressure losses, entropy. Mach number, and temperature including limiting streamlines, shows that the blade tip water injection could help in reducing low energy region downstream of the Shockwave and strength of the tip leakage vortex with the compressor operating at its rotating stall boundary condition. The extent of reduction depends on the droplet size, injection fiow rate, and its velocity. Furthermore, results show that combined case of the blade tip water injection and the wet compression could provide better stall margin enhancement than the blade tip water injection case.