The flow physics in a large rotor tip gap in a 1.5-stage axial compressor is investigated in the current study. The flow structure in the rotor tip region is complex with several dominant vortical structures of opposite rotation, resulting in inhomogeneous and highly anisotropic turbulence. Earlier measurements show that eddy viscosity is negative over large parts of the tip region and eddy viscosity varies among stress/strain components. The present study aims to understand how the complex nature of rotor tip leakage flow affects compressor performance when the tip gap size is greater than 4–5% of the rotor span, which is typical of advanced small core engines. Unsteady Reynolds-averaged Navier-Stokes (URANS) and Large Eddy Simulation (LES) techniques are applied to study flow physics in a large rotor tip gap (5.5% of rotor span) in a 1.5-stage axial compressor. Calculated flow fields from the two different approaches are compared with available measurements and examined in detail. LES calculates the pressure rise in the present compressor fairly well, while URANS with a standard two-equation turbulence closure underpredicts the pressure rise by 15–20% of the measured values. The current study shows that URANS with the current turbulence closure produces much higher all-positive eddy viscosity in the tip-gap region compared to measurements and LES. The distribution of eddy viscosity in the URANS simulation is also wrong. Consequently, the flow in the tip region is highly damped with significantly larger blockage generation, which results in the tip leakage vortex (TLV) staying closer to the blade suction side compared to the measurement. When the TLV stays closer to the blade, both flow turning and the pressure rise across the compressor are reduced compared to the measurements. It appears that this effect is amplified by a large rotor tip gap.