A thorium-based fuel cycle for light water reactors will reduce the plutonium generation rate and enhance the proliferation resistance of the spent fuel. However, priming the thorium cycle with 235U is necessary, and the 235U fraction in the uranium must be limited to below 20% to minimize proliferation concerns. Thus, a once-through thorium-uranium dioxide (ThO2-UO2) fuel cycle of no less than 25% uranium becomes necessary for normal pressurized water reactor (PWR) operating cycle lengths. Spatial separation of the uranium and thorium parts of the fuel can improve the achievable burnup of the thorium-uranium fuel designs through more effective breeding of 233U from the 232Th. Focus is on microheterogeneous fuel designs for PWRs, where the spatial separation of the uranium and thorium is on the order of a few millimetres to a few centimetres, including duplex pellet, axially microheterogeneous fuel, and a checkerboard of uranium and thorium pins. A special effort was made to understand the underlying reactor physics mechanisms responsible for enhancing the achievable burnup at spatial separation of the two fuels. The neutron spectral shift was identified as the primary reason for the enhancement of burnup capabilities. Mutual resonance shielding of uranium and thorium is also a factor; however, it is small in magnitude. It is shown that the microheterogeneous fuel can achieve higher burnups, by up to 15%, than the reference all-uranium fuel. However, denaturing of the 233U in the thorium portion of the fuel with small amounts of uranium significantly impairs this enhancement. The denaturing is also necessary to meet conventional PWR thermal limits by improving the power share of the thorium region at the beginning of fuel irradiation. Meeting thermal-hydraulic design requirements by some of the microheterogeneous fuels while still meeting or exceeding the burnup of the all-uranium case is shown to be potentially feasible. However, the large power imbalance between the uranium and thorium regions creates several design challenges, such as higher fission gas release and cladding temperature gradients. A reduction of plutonium generation by a factor of 3 in comparison with all-uranium PWR fuel using the same initial 235U content was estimated. In contrast to homogeneously mixed U-Th fuel, microheterogeneous fuel has a potential for economic performance comparable to the all-UO2 fuel provided that the microheterogeneous fuel incremental manufacturing costs are negligibly small.