Direct laser ablation is cheap, fast, and flexible method used for the fabrication Lab on chip (LOC) devices. However, the thermal damages associated with such a process are considered a major limitation. This paper presents an experimental study of the effect of using CO2 laser micromachining on the fabrication of straight microchannels in polymethyl methacrylate (PMMA) substrate. Experiments were conducted in air (dry) and under water by leaving a thin water layer at the top surface of PMMA substrate. Taguchi’s experimental design with grey relational analysis was used for multi-objective optimization of laser parameters. Analysis of variance (ANOVA) was also employed to determine the most significant control factors that affect the performance characteristics. Laser power, scanning speed, and pulse rate are optimized with consideration of multiple performance characteristics, such as aspect ratio of microchannel, surface roughness, and heat affected zone (HAZ). The results indicated that laser power is the most significant factor on the performance characteristics followed by scanning speed and pulse rate. The improvement in performance characteristics approved the effectiveness of grey relational analysis approach for that purpose.