Abstract We have developed a one-way nested Indian Ocean regional model. The model combines the National Oceanic and Atmospheric Administration (NOAA) Geophysical Fluid Dynamics Laboratory’s (GFDL) Modular Ocean Model (MOM4p1) at global climate model resolution (nominally one degree), and a regional Indian Ocean MOM4p1 configuration with 25 km horizontal resolution and 1 m vertical resolution near the surface. Inter-annual global simulations with Coordinated Ocean-Ice Reference Experiments (CORE-II) surface forcing over years 1992–2005 provide surface boundary conditions. We show that relative to the global simulation, (i) biases in upper ocean temperature, salinity and mixed layer depth are reduced, (ii) sea surface height and upper ocean circulation are closer to observations, and (iii) improvements in model simulation can be attributed to refined resolution, more realistic topography and inclusion of seasonal river runoff. Notably, the surface salinity bias is reduced to less than 0.1 psu over the Bay of Bengal using relatively weak restoring to observations, and the model simulates the strong, shallow halocline often observed in the North Bay of Bengal. There is marked improvement in subsurface salinity and temperature, as well as mixed layer depth in the Bay of Bengal. Major seasonal signatures in observed sea surface height anomaly in the tropical Indian Ocean, including the coastal waveguide around the Indian peninsula, are simulated with great fidelity. The use of realistic topography and seasonal river runoff brings the three dimensional structure of the East India Coastal Current and West India Coastal Current much closer to observations. As a result, the incursion of low salinity Bay of Bengal water into the south-eastern Arabian Sea is more realistic.