Our previous work on an air-cooled stack of five pouch-format lithium-ion (Li-ion) cells showed that non-uniform temperature can cause accelerated degradation, especially of the middle cell. In this work, a stack of five similar cells was cycled at a higher C-rate and water-cooled to create a larger temperature gradient for comparison with the air-cooled stack. It was hypothesized that the larger temperature gradient in the water-cooled stack would exacerbate the degradation of the middle cell. However, the results showed that the middle cell degraded slightly slower than the side cells in the water-cooled stack. This trend is opposite to that in the air-cooled stack. This difference could be attributed to the combined effects of a smaller temperature rise and larger temperature gradient in the water-cooled stack than in the air-cooled stack. Post-mortem analysis of cycled cells and a fresh cell showed that the degradation mainly came from the anode. Increased lithium plating and decreased porosity in the side cells are possible mechanisms for the faster degradation compared with the middle cell. It was also found that all the cells in the water-cooled stack experienced a phenomenon of capacity drop and recovery after a low C-rate reference performance test and extended rest. This phenomenon can be attributed to lithium diffusion between the anode active area and the anode overhang area.