This study evaluated the leakage characteristics of a stepped labyrinth seal. Experiments and computational fluid dynamics (CFD) analysis were conducted for a wide range of pressure ratios and clearance sizes, and the effect of the clearance on the leakage characteristics was analyzed by determining the performance of the seal using a dimensionless parameter. It was observed from the analysis that the performance parameter of the seal decreases as the clearance size increases, but it tends to increase when the clearance size exceeds a certain value. In other words, it was revealed that there exists a specific clearance size (Smin) which minimizes the performance parameter of the seal. To identify the cause of this tendency change, a flow analysis was conducted using CFD. It was confirmed that the leakage characteristics of the stepped seal are affected by the size of the cavity, which is the space between the teeth. Therefore, a parametric study was conducted on the design parameters related to the cavity size (tooth height and pitch). The results show that the performance parameter decreases as the tooth height and pitch decreases. Moreover, Smin increases as the tooth height increases and the pitch decreases.