Three-dimensional numerical simulations have been performed to investigate the flow structure of the upstream cavity and the aerodynamic loss in a compressor cascade with labyrinth seal. On the basis of this analysis, the interaction of the secondary flow generated by upstream cavity and the leakage flow was studied. In addition to the classical hub secondary flow that caught by labyrinth seal, another secondary flow was found which is similar to leakage flow and generated by the mainstream in the upstream cavity. Detailed analyses of the interaction of the upstream cavity secondary flow and the leakage flow reveals: when the percent of seal-clearance/blade span ratio decreases from 1.0% to 0.5%, the mass of leakage flow decreases by 53% and the aerodynamic loss only decreases by 1.784%. With 0.5% seal clearance ratio, the upstream cavity creates more secondary flow. With increasing seal clearance ratio, the secondary flow effect generated by upstream cavity is weaken.