Natural circulation is an important passive heat-removal mechanism in both existing and next-generation light water reactors. Thermal and stability analyses are performed for a two-phase natural circulation loop. The homogeneous equilibrium model is employed to describe the two-phase flow in the loop. Subsequently, a linear stability analysis is performed in the frequency domain to establish the stability map of a natural circulation loop. The mass flow rate increases rapidly with increasing heater power until it reaches a maximum and then decreases slowly with increasing heating power. The maximum flow rate may be obtained for a riser with length and diameter two to three times that of the heater. Stability analyses indicate that in addition to the unstable region for density-wave oscillations at high power levels, there is an unstable region at low power levels. The existence of this unstable region is supported by several experimental observations. The area of the unstable region at low power levels increases with decreasing riser diameter, with increasing riser length, and with decreasing system pressure.